Savings are falling during quarantine, which is a “clear sign” of economic slowdown, says Bank spokesman

Ben Broadbent says discretionary spending and big-ticket buying has «eased significantly». Photo: Kirsty O'Connor/Pool/REUTERS

Households have spent almost all the extra money they saved during lockdown amid «clear signs» of an economic downturn, the Bank of England's deputy governor said.

Ben Broadbent reported the amount of additional savings. household savings have «declined» during the pandemic, adding that discretionary spending and big-ticket purchases such as furniture and consumer electronics have «weakened significantly.»

Lockdown has forced most people to stay at home, while Rishi Sunak's furlough scheme has supported the incomes of millions of workers, helping households add an extra £200 billion to existing cash cushions during the pandemic.

“Most of that is gone. » Mr Broadbent said at a conference organized by the European Central Bank in Frankfurt.

The bank kept its interest rate at 5.25% last month, a sign that interest rates have peaked .

Mr Broadbent said there were now «fairly clear signs» that higher interest rates were starting to bite, including a decline in consumer spending and «the start of at least some recovery in unemployment», which rose from 3.5% a year ago to 4. 3%.

He warned that the labor market could “suddenly weaken” if economic activity falls sharply.

The Resolution Fund said the deteriorating UK labor market would soon put downward pressure on wages, which are currently rising at a record pace, and force the Bank to cut interest rates below 5% faster than other major economies, including the US.

< p >The think tank warned that job seekers will soon face the toughest job market since 2008 as higher interest rates force companies to stop looking for more workers.

It said: “The UK labor market is already weakening further.” faster than anywhere else, and more to come.

“Based on historical estimates of the impact of interest rate changes — about half of which is already reflected in the data — tightening should be enough… to reduce wages by about 2 percentage points.”

< p>“But if only about a third of the effect of the rate hike has occurred so far, that suggests the labor market will weaken to a degree not seen since the deep financial crisis.”

Some economists are now predicting a recession will begin later in the year as higher interest rates and mortgage costs begin to take effect.

< p>Mr Broadbent said he still expected the average rate paid by mortgage holders to continue to rise as more families completed fixed-rate deals. The Bank estimates that millions of households are likely to see their mortgage payments rise by an average of £220 by 2026, with around a million people facing increases in monthly payments of £500 or more.

Selected data The bank suggested on Thursday that companies were still meeting higher wage demands, with wage growth forecasts for the coming year unchanged at 5.1% in September compared with the previous month.

However, there were signs that broader inflationary pressures were beginning to ease. Businesses surveyed in the three months to September expected selling prices to rise by 4.8% in the coming year, up from 5% in the three months to August.

Andrew Bailey, Governor of the Bank, said that Monetary Policy The interest rate setter will closely monitor wage growth in the coming months for signs that the labor market continues to cool.