Consumers unleash pandemic savings ahead of Christmas

The rapid increase in savings triggered by the pandemic appears to have cooled in the run- up to Christmas, according to Bank of Ireland.

The lender’s latest savings and investment barometer, which tracks household attitudes towards savings, recorded its largest ever quarterly decline with the headline index dropping 15 points to 87 in the fourth quarter .

Historically, a fall in saving has been observed in the run-up to Christmas, but the latest decline was the largest registered since the series began in 2017, Bank of Ireland said.

Only a third (33 per cent) of consumers said now is a good time to save, down from 49 per cent in November last year, while 40 per cent saw it as a bad or very bad time to save, up from just 24 per cent on the previous quarter.

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"These findings reveal a considerable shift over the past three months, especially in relation to savings," said Kevin Quinn, chief investment strategist at Bank of Ireland.

“It seems likely that there is pent-up demand to spend rather than save and all else being equal this could translate into a surge in spending in the run up to and during the Christmas period,” he said.

“This shift also reflects an increased awareness among consumers that the meagre returns on savings and rising prices have eroded the value of savings in this environment,” he said.

Super-charged growth

The Central Bank has forecasted super-charged growth of 15.3 per cent this year on the back of a rapid resurgence in consumer spending linked – in part – to the unwinding of excess savings built up during the pandemic.

However, that was before the emergence of the Omicron variant of Covid-19 and new restrictions.

From the start of 2020 to the middle of 2021, household deposits – a proxy for savings – increased by €21 billion.

The Central Bank estimated that €9 billion to €12 billion of this was “forced or precautionary” and would flow back out into the economy in the form of additional spending in the near to medium term.

Bank of Ireland’s report noted that consumers appeared to be more confident about spending, given the amount of accumulated savings and the fact that most people are vaccinated.

“ There have also been more opportunities to spend over the past month with ‘Black Friday’ sales and Christmas shopping underway,” it said.

“Part of the survey captured the period since the Omicron variant hit the headlines and while renewed restrictions may have a bearing in the weeks ahead, there was a noticeable shift to spending in the period.”

The report also captured a decline in both the incidence of investment and consumers’ perception of the environment for investing.