£150bn spending explosion to drive up UK inflation? Why I can't see it!

Despite talk of inflationary pressure falling in the UK in February, the banks are predicting an increase in inflation rates back up to the 'target rate of 2%', once a predicted £150 billion of stored up spending is unleashed as Covid restrictions are relaxed.

£150 billion is the cash that has been saved by people who have been unable to venture out and spend as they normally would due to lockdowns over the past 12 months.

But will this really happen?

It will be interesting to see how this plays out. Although I can imagine that people will be keen to head out to restaurants, bars and enjoy other activities, I wonder how much consumer spending in shops will actually increase? If I think of my own family situation, we have been shopping online for all our needs and it has worked out pretty well on the whole. I can't see us now rushing out to return to the High Street (especially whilst having to wear masks and social distance etc).

Also, if we have to sit in restaurants and bars wearing masks and in venues that are half-empty, I think will end up giving it a miss. Roll out the barbecue and let's pray for some good weather!

Holidays and vacations abroad also look out of the question for the remainder of 2021 and possibly into 2022. On this basis, I can see us spending more on the garden as we will no doubt be spending a lot more time in it (again) this year. Maybe also some more spending on home improvements - for similar reasons.

So, in summary, if I look at our year ahead, I can't see our consumer spending changing much. Will this have an impact on inflation? Well it depends on how this plays out for everyone else, but I fail to see how the predicted £150 billion spending explosion is going to happen this year.

Having worried about rampant inflation in my last post, maybe in the short-term we might see some further deflationary pressures. Neither is good.

Photo source: FT.com

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