Household spending has been lower than usual this year, due to the Covid pandemic. The pandemic has also hit household incomes, but to a lesser extent, partly reflecting government policies to support income, most notably the Coronavirus Job Retention Scheme.
As a result, household savings have risen, on average. The extent to which this affects consumption in the months ahead will partly depend on which households have seen their savings rise, and what those households plan to do with their savings.
Household-level surveys can help to shed light on this question. We conduct a biannual household survey with NMG Consulting to gather data on households’ finances and their expectations for the economy. The 2020 H2 NMG survey was conducted between 25 August and 15 September.
Twenty-eight per cent of those surveyed had accumulated additional savings as a result of the pandemic, while 20% had depleted their savings. Unsurprisingly, households whose savings increased due to the pandemic were much less likely to have seen their incomes fall (for example, because of furlough or unemployment) than households whose savings decreased.
The accumulation of savings was greatest for high-income households (Chart A). Forty-two per cent of high-income employed households saved more during the pandemic, compared with 22% of low-income employed households. Retirees also saved more: 36% of them had increased their savings. The reported income of households that had increased their savings was 25% higher on average than households that had decreased their savings, and their reported holdings of deposits were over two times greater (Chart B).
Chart A: Higher-income households and retirees are more likely to have increased their savings during Covid
Footnotes
- Notes: High-income employed households are households where the main earner is either employed or self-employed and the household income is in the top quintile; middle-income employed households are households where the main earner is either employed or self-employed and the household income is in the third or fourth quintile, and low-income employed households are households where the main earner is either employed or self-employed and the household income is in one of the bottom two quintiles. Retirees are households where the main earner is retired.
- Sources: 2020 H2 NMG Household Survey and Bank calculations.
Chart B: Households that increased their savings during Covid have higher incomes and are wealthier
Footnotes
- Sources: 2020 H2 NMG Household Survey and Bank calculations.
Our analysis suggests that the accumulation of saving has been concentrated among wealthier and less financially distressed households.
These households may be less likely to spend their savings in support of the recovery: higher-income households tend to spend a smaller fraction of their income, both on average and in response to a positive shock to their finances.
Only 10% of the households that increased their savings (less than 3% of the whole sample) planned to spend the money they had saved. About 70% said they planned to continue to hold the savings in their bank accounts. Others planned to use their savings to pay off debts, invest, or top up their pensions.
This post has been prepared with the help of Charles Nourse, James Tasker and Marco Garofalo.
This analysis was presented to the Monetary Policy Committee in November 2020.
We have published NMG survey data from 2004 to 2020.
This post was updated in June 2021 to correct a minor error in Chart B.
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