The retail sales data have been adjusted for the switch to CPI deflation in 2001. Retail sales growth for 2020 Q4 is based on data to November, services growth on data available to date. 1  The series is retail sales excluding fuel, which goes back slightly further (to 1988) than the aggregate figure. 2  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  2  There are probably several reasons for this anomaly, and in the first part of this talk I’ll briefly go through some of them. Perhaps the single most important factor is the introduction of the various furlough schemes. At the cost of a huge jump in government debt these have shielded household income from the drop in national income seen in the first half of last year. Spending by today’s consumers has in part been sustained and funded by tomorrow’s taxpayers. However, what I want to spend more time on in this talk is something else: the significant shifts across different areas of that spending. Retail sales may have been strong – they’ve grown by more than the historical average and more than household income – but, as you can see from Chart 2, spending on consumer services has been extremely weak. There’s an obvious reason for this, of course: in the midst of the pandemic some activities involve more risk of infection than others. Going to a busy shop may be more risky than shopping online.
Chart 6: Online sales jumped during lockdown  Chart 7: Saving rose and fell sharply during and after the spring lockdown  The share of online retail sales. Source: ONS. Sources: Bank of England, ONS, The Investment Association, and Bank calculations. The blue line includes flows into household deposits with banks, National Savings and Investment  4  I’m not going to distinguish here between consumers’ own inclinations and any additional impact of mandated lockdowns. That the lockdowns have been necessary is clear. While they obviously have an incentive to avoid infection themselves individuals won’t always take fully into account the risk they pose to others, particularly when so many people can apparently be infectious but free of symptoms. In economists’ language there’s a clear “externality” that obligatory lockdowns are seeking to address. For the same reason, it seems very likely that the lockdowns will have had an additional effect on spending, above and beyond those that would’ve resulted from consumers’ own natural caution (although as my colleague Jan Vlieghe recently explained (Vlieghe (2020)), it’s empirically difficult to separate these things in the data because, in most countries, they’ve coincided with each other, both of them responding to swings in infection rates). In the current context you can think of this as a widening in the basket of activities that carry infection risk – and perhaps, more fundamentally, as the result of a model in which individual utility is replaced by some measure of social wellbeing.