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Bank of England economist says UK 'like a coiled spring'

Oscar Williams-Grut
·Senior City Correspondent, Yahoo Finance UK
·3-min read
Chief economist of the Bank of England, Andy Haldane. Photo: Toby Melville/Reuters
Chief economist of the Bank of England, Andy Haldane. Photo: Toby Melville/Reuters

The chief economist of the Bank of England has said the UK economy is poised to bounce back strongly once COVID-19 vaccines are rolled-out widely and restrictions on everyday life are lifted.

Writing in the Daily Mail on Friday, Andy Haldane said the UK was like a "coiled spring" ready to explode once conditions were right.

"The rapid rollout of the vaccination programme across the UK means a decisive corner has been turned in the battle against Covid," Haldane wrote. "A decisive corner is about to be turned for the economy too, with enormous amounts of pent-up financial energy waiting to be released, like a coiled spring."

READ MORE: UK economy shrank by record 10% in 2020

Haldane said a combination of desperation to catch up on missed socialising and record household savings meant the reopening of the economy should be like "a light-switch being flicked rather than a dimmer-switch being turned."

Households have accumulated £125bn ($175bn) in savings during the pandemic and Haldane said this "nest-egg" could reach £250bn by June at the current rate.

It is unclear how much will be spent after the crisis passes but Haldane predicted a surge in spending once restrictions ease.

"People are not just desperate to get their social lives back, but also to catch up on the social lives they have lost over the past 12 months," he wrote.

"That might mean two pub, cinema or restaurant visits a week rather than one. It might mean a higher-spec TV or car or house.

"There were glimpses of this last year as people used their savings as a down-payment on a mortgage, helping fuel a mini housing boom.

"If households spent, say, a quarter of their savings this would boost growth by more than an extra £50bn."

WATCH: UK economy suffers record 9.9% slump in 2020

READ MORE: UK economy will 'recover rapidly' thanks to vaccines, says Bank of England

Haldane also expects a rebound in business investment and said already published government spending plans would be more effective as the economy starts to reopen.

"Come the Spring, we can expect the UK economy to be firing on all three cylinders – households, companies and government," Haldane wrote.

The optimistic forecasts came as new data confirmed the worst annual slump on record for the UK economy. GDP shrank by 9.9% in 2020, the Office for National Statistics said on Friday.

"While today the economy is shrinking and inflation is well below target, a year from now annual growth could be in double-digits and inflation back on target," Haldane wrote. "The economy is poised like a coiled spring. As its energies are released, the recovery should be one to remember after a year to forget."

READ MORE: Businesses stop serving EU due to 'nightmare' Brexit rules

Haldane has been consistently optimistic about the prospects for the UK economy throughout the pandemic. Early on in the crisis he predicted a so-called V-shaped recovery — a swift rebound — and last September he warned people against "chicken licken" pessimism about the economy.

WATCH: Vaccine rollout will help economic recovery