“Savings rates, for reasons that are pretty easy to understand, became very high during Covid, to a large extent because people's ability to go out and spend money was much reduced. So no great surprise there.
“What's been surprising is that it hasn't fallen back anywhere near to the very low levels it was in the years leading up to Covid. We thought that might happen and it turns out that hasn't happened.
"To some extent only a minor part of it is that interest rates have subsequently moved up since the end of Covid. That may be a bit of a factor. I suspect a stronger one is just heightened uncertainty about what the future might bring,” he explained.
One committee member probed the panel on why the OBR had forecast a 1 per cent fiscal loosening and yet GDP was only increasing by 0.6 per cent.
Miles replied: "The big picture answer is that the UK, at the moment, looks like an economy with not a whole lot of spare capacity in the economy, and the unemployment rate is pretty low. There may be some loosening in the labour market, but it's still the case that vacancies are historically quite high.
“A lot of surveys suggest that companies haven't got a lot of slack. So if you add some demand to the economy, which this Budget clearly does, you can get a short run impact, which is meaningful.
"That's what drives the growth rate up to 2 per cent but if you're running up against capacity limits, that's going to put a sort of natural ceiling on how much you can boost GDP until the point at which budget measures actually start increasing the production potential of the economy.”
alina.khan@ft.com
