The Covid-19 pandemic and the measures to contain its spread have caused both household income and spending to drop very sharply. But aggregate statistics on income and spending mask substantial variation in the experiences of different households. This variation might lead to economic or financial outcomes that have implications for the Bank of England's monetary policy and financial stability objectives.
The NMG survey is a biannual household survey commissioned by the Bank of England to gather data on households’ finances and their expectations for the economy. The 2020 H1 NMG survey, conducted between 6 April and 1 May, helps to shed light on the impact of Covid-19 during April.
We analysed how households’ experiences over that period varied based on their employment status.
Workers who were furloughed and self-employed people were most likely to have experienced a reduction in income. Only a small number of those remaining in employment saw their earnings fall.
In contrast, most households, regardless of employment status, reported that they had reduced their spending (Chart A).
As a result, some households — those whose income had not changed but whose spending had fallen — would have seen their savings rise, leading to an improved financial situation. An important determinant of the shape of the recovery will be if, and when, these households choose to spend these savings.
Other households have struggled to make ends meet, particularly those with limited savings. One in five respondents to the NMG survey suggested they were experiencing financial difficulty due to Covid-19.
Government support schemes and payment holidays have provided substantial support to households in difficulty.
Ten per cent of mortgage borrowers had taken a mortgage payment holiday in April, according to our survey results. Data from UK Finance suggests this figure rose to slightly over one in six mortgages in June.
Our survey suggests that those on payment holidays were more likely to have higher levels of mortgage debt and might have otherwise experienced difficulties repaying their mortgage.
So far, payment holidays appear to be one reason that have prevented these households having to make larger cuts to consumption than other households, according to our survey. This suggests payment holidays have helped to minimise the extent to which mortgage debt has amplified the economic shock to date.
This post has been prepared with the help of James Tasker and Lindsey Rice-Jones.
This analysis was presented to the Monetary Policy Committee in June 2020.
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