Personal finances: impact of coronavirus pandemic
Effects of the pandemic on household finances and financial distress
The pandemic had a huge impact on the UK economy has been huge with national income falling by 20% in April, to a level last seen in the early 2000s. The effects of this on the finances of different households will vary widely.
This report explores the impacts of the crisis to date on earnings, incomes and financial distress, and how they are evolving. It found:
- The pandemic led to abrupt falls in employment, earnings and incomes by April with no signs of a recovery in May.
- The crisis impacted the earnings of the poorest households the most with a fall in median household earnings of around 15% for those in the poorest fifth.
- The number of households making mortgage, rental and council tax payments was, respectively, 14%, 11% and 9% below what was predicted based on pre-crisis trends.
- ‘Forced saving’ – declines in spending on goods and services that were substantially affected or shut down by lockdown – has been significant across the income distribution, but greater for higher-income households, with the top fifth reducing spending on these goods by 41% (£195 per month), compared with 30% (£75) for the poorest fifth.
- For richer households, declines in spending during the crisis have outweighed income falls, meaning that they have accumulated savings at a faster rate than normal. But spending falls have been much smaller among the poorest households, leading to an average £170 per month decline in their bank balances between March and September relative to what we would expect in normal times.