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Rabobank’s Stefan Koopman analyses United Kingdom demand prospects under Prime Minister Burnham’s shift from “securonomics” to “vibonomics”. The report argues that elevated household saving and weak confidence leave scope for a temporary consumption boost if sentiment improves. However, it stresses that lasting growth in the UK will depend on structural reforms to productivity, investment, housing, energy and real wages.
Confidence, savings and UK demand
“The upside is that it all leaves a buffer that stronger confidence could partly unlock. In hindsight it poses an awkward question for Starmer and Reeves. By repeatedly stressing security, discipline and repair, did they inadvertently reinforce the sense that households needed to remain defensive?”
“Looking ahead, we expect the saving ratio to remain at around current levels, averaging 9.4% over the next two years, as we expect continued cautiousness amidst structural uncertainty, with interest rates remaining at elevated levels. This means that we expect the build-up of yet another £150 billion in savings.”
“We estimate that every one percentage point decline in the household saving ratio is equivalent to roughly 0.5% of GDP in additional demand once import leakages are taken into account. A sustained fall of around three percentage points, bringing the saving ratio back towards its pre-pandemic average, could therefore raise the level of GDP by about 1.5%. Spread over the period to the 2029 election, that could make a 1.0% growth economy temporarily look more like a 1.5% economy.”
“Burnham can probably improve the mood and may even buy himself a few stronger quarters. But he cannot vibe the UK out of its consumption slump. For that, the autumn reform agenda will need to tackle the structural constraints holding back both supply and living standards.”
