Chancellor Rishi Sunak, outside No10 Downing Street

Chancellor Rishi Sunak issued a plea this week for an increase in consumer spending next year as the UK opens back up from months of lockdown limitations on daily life.

During an online Conservative party event, Sunak told attendees: “I think people have been sitting at home, building up some savings hopefully and we would like to go and spend them when we get back."

The Centre for Economic and Business Research reported at the start of December that there was an estimated 19% saving in disposable income in the UK. According to CEBR, this equates to £7,100 per household or £197 billion nationwide.

Inevitably there has been backlash on social media, with many pointing out that large swathes of the public have been on furlough for the majority of 2020, while others working from home have seen an increase in their utility bills, as well as a general cost of living increase for food and clothing.


To revive the UK economy quickly, the chancellor needs to get the British people spending again. We do live in a consumer culture, so this on the face of it isn't too difficult a challenge, but over the past few years people have been told to manage their money better; budget more accurately, make more savings, make more pensions contributions.

Sunak's problem is twofold. Those who couldn't save because they were living day to day or week to week are unable to spend more than they are currently. Those who could save, and did heed these messages, are unwilling to spend in such a period of economic uncertainty, as they may rely on these savings as emergency funds should things go awry.

Certainly, the one point made by the CEBR about 2021 and the UK's economic recovery was that consumers will likely want to hold on to any accumulated cash given the uncertainty around Brexit and the reality of the recovery as opposed to forecasts.



Andy Haldane, pictured at a joint BoE/ECB conference. Photo courtesy of the European Central Bank.

If the government can't persuade the public to spend more (and there's a real chance of this being the case) then it must look at alternative ways of forcing the public's hand – and purse. One such way would be to advocate for negative interest rates.

The BoE has this year teased about the potential for negative interest rates. On October 12, Sam Woods (Deputy Governor and Prudential Regulation CEO for the Prudential Regulation Authority at the Bank of England) issued an official response explaining how the Bank of England was undertaking internal research and discussions around the possibility and feasibility of implementing negative interest rates. Since then both Gertjan Vlieghe, a member of the Monetary Policy Committee, and Andy Haldane, Chief Economist at the Bank of England, have advocated for the benefits of such rates.

Negative interest rates mean that you will be charged for keeping your money in the bank. You will pay interest on this, rather than the other way round. Similarly, banks are 'incentivised' to offer more loans, aka they too are charged interest – for keeping cash with the Bank of England. This is not a popular action, but it does coerce people and banks into spending money rather than letting it be eroded.

The whole point of negative rates is to stop people holding on to money and get it moving around an economic system again. Without spending there is a decline in demand, and this causes a drop in prices. Low interest rates have already been introduced to try and promote loans and spending, rather than savings, but for Rishi Sunak to come out and ask the public to spend suggests it isn't having enough impact.

Investors in bullion already know the benefits of gold (and silver) in the face of rising inflation. Low interest rates mean little to no opportunity cost on gold, as no assets are generating yield while gold isn't. Negative interest rates will only benefit physical bullion further as they seek to drive inflation up. Factor in that the Bank of England has also been indulging in money printing aka “quantitative easing” and the case for gold only improves. If the value of the pound sterling decreases, the value of accumulated wealth and saving too devalues unless you utilise it beforehand and put it into an alternative asset. It's no coincidence that gold and Bitcoin have had an excellent 2020. People aren't willing to sit around and watch the system throw away their money again, like it did 2008-2010.