Household income and spending both fell during Covid-19
The bank found that many households cut spending, even if their income did not fall.
The study found that 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.
The bank analysed how households’ experiences over that period varied based on their employment status.
Reductions in income
It found that workers who were furloughed and self-employed people were most likely to have experienced a reduction in income.
Nearly seven in 10 (69%) employed people said their income remained unchanged during coronavirus, compared to just 29% of self-employed people who said their income had stayed the same.
Only 18% of those remaining in employment saw their earnings fall, compared to 67% of those furloughed, and 66% of self-employed workers.
Reduction in spending
Although more than two thirds (65%) of those surveyed said their income hadn’t reduced, more than half (57%) of households, regardless of employment status, reported that they had reduced their spending.
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.
The Bank of England says an important determinant of the shape of the recovery will be if, and when, these households choose to spend these savings.
Some households struggling
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.
The bank found that 10% of mortgage borrowers had taken a mortgage payment holiday in April. Data from UK Finance suggests this figure rose to slightly more than one in six mortgages in June.
The Bank of England’s 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.