The build up in savings is very much skewed to higher income earners, with quite a bit of financial distress lower down, where many households have been borrowing more or eating into savings just to survive. Their consumption may take a long time to come back.
In any case, if I were Sunak, I’d be biding my time on both VAT cuts and the sort of free cash handouts proposed by the Resolution Foundation as a way of getting households to spend again. These measures may well be needed later when the furlough scheme expires at the end of October.
Consumption and jobs are in a sense two sides of the same coin. People won’t spend unless they have jobs, but there will be no jobs if people don’t spend. So at this stage, measures to encourage employment have to be the priority.
Again, I have a sneaking suspicion that the damage to employment is not going to be quite as bad as initially feared.
One often overlooked feature of furlough is that a significant proportion of beneficiaries are EU migrant workers, particularly in the hospitality, entertainment and retail industries. Many of these have gone home, and with Brexit pending, won’t return even when the furlough scheme ends. So they will act as something of a pressure valve on the jobs front.
Even so, Sunak will need to do something radical beyond what has already been trailed to avoid a serious surge in unemployment. Tomorrow’s update will seem somewhat pointless if he doesn’t.