Generous fiscal support packages, at a time when spending opportunities were reduced, meant that households across the major economies began this year with substantial pandemic savings pots. Fathom estimates these were worth as much as 11% of GDP in the US, around 9% of GDP in the UK and around 5% of GDP in the euro area. It appears that most of these savings are yet to be spent. What has happened to them? Monetary statistics from several countries suggest that, rather than being spent on housing, or used to pay off debt, most of the extra savings are being held on deposit, in liquid form. Our chart this week shows UK household sector M4 (a measure of sterling notes and coin and sterling deposits held by UK households at UK banks). It has risen by an amount equivalent to 10% of GDP since the pandemic took hold, matching almost precisely our estimate of the size of pandemic savings pots in the UK household sector. The fact that these savings have not been invested in long-term assets, such as equities, suggests that households are keeping their options open. It may yet be the case that a significant portion of these savings are spent as confidence in the recovery increases.
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