Bank of England figures show that households' time deposits have fallen by £37.5bn, or 13.5 per cent, in the last 12 months. But their instant access savings - sight deposits, current accounts and cash - have grown by £73bn or 11.7 per cent. The difference between these two growth rates is the largest since records began in 1998.
Does this mean anything? There are three possibilities.
At one extreme, it means nothing. This is just an asset swap. With interest rates on long-term deposits so feeble, savers don't feel as if they're being rewarded for tying up their cash, and are instead switching to more convenient forms of saving, perhaps in the hope that interest rates will rise. If they intend to continue saving, this doesn't much matter.
At the other extreme, though, the switch could be a sign that spending is about to increase because we've taken cash out of long-term savings with the intention of spending it. This is what I've done. I've used a maturing savings bond to buy a new car, and the cash is sitting in my current account (at least I hope it is: I bank with Nat West) awaiting delivery of the car.
In between these extremes is the matter of weakness of will. Some people transferring cash to instant access accounts might intend to keep it there until interest rates rise, but might give in to temptation and spend some of it.
All these theories apply to someone. But which is most important at the macroeconomic level?
There's some evidence that a switch between sight and time deposits can be just an asset swap. In 2005, for example, instant access savings grew quickly relative to long-term savings, but retail sales then were weak.
However, generally speaking, links between the growth of instant access deposits relative to time deposits and economic activity are positive. Since December 1999, the correlation between annual growth in the instant/time deposits ratio and annual growth in retail sales has been 0.49. And the correlation between the annual change in this ratio and the annual change in house prices has been 0.6. When instant access savings rise relative to time deposits, retail sales and house prices tend to rise too. This is consistent with people shifting into more liquid deposits in preparation for spending on goods or raising the deposit for a house.
But these correlations aren't conclusive. Much of their power comes from the fact that time deposits rose sharply relative to instant access accounts in 2008-09, and house prices and retail sales both fell then. And this might be coincidence rather than causality. When Northern Rock collapsed in 2007, savers lost faith in time deposits. But as the government publicised the fact that most deposits were guaranteed, confidence in time deposits grew in 2008, from a low base. But this happened at the same time as the recession clobbered retail sales and house prices. It's not clear, then, how far the rise in time deposits was a cause of falling spending.
In fact, if falling time deposits were a big cause of spending, we should have seen much more of a rise in retail sales and house prices this year than we've actually had.
On balance, then, it's not certain that the shift out of time deposits will lead to a boom in household spending - and it's even less clear whether it will lead to generalised inflation. However, it does have the potential to do so. It might, therefore, be that we shall be surprised by the strength of household spending next year.
