Coronavirus: Impact on household savings and debt

Since the beginning of the coronavirus pandemic, official statistics show that total household savings have increased and total household debt has remained mostly unchanged, largely due to a fall in spending on non-essential items over lockdown and little change in household income.

The household savings ratio (household savings as a proportion of household disposable income) increased from 8.9% in January-March 2020 to 25.9% in April-July 2020, a record high since the series began in 1987. This decreased to 14.3% in July-September 2020 as the economy opened up, and then increased again in October-December 2020 and January-March 2021 during lockdowns.

Total household debt was £1,892 billion in January-March 2021, only 2.4% more than the year before. Unsecured debt fell in each month between March 2020 and May 2021 in total, as many households reduced their spending and so were less likely to borrow.

Inequality

While on the whole, household savings have risen and debt has remained at a similar level, there is evidence to suggest that some households, particularly those with low incomes, have run down savings and increased debt since the start of the pandemic.

The Office for National Statistics found that by December 2020, nearly 9 million people had to borrow more money than usual because of coronavirus.

Groups which are more likely than average to have taken on more debt since the start of the coronavirus pandemic include renters, people from minority ethnic groups, parents and carers, disabled people and those who are shielding, and young people.

Comparing the impact of the pandemic to the 2008/09 financial crisis

The UK financial system was better prepared for the pandemic in 2020 than the financial crisis in 2008: in 2008 household debt was rising quickly, which amplified the economic shock, and this was not the case in 2020. In 2020/21, interest rates are lower, more regulation is in place, and the banking system is better capitalised than in 2008.

Unlike in 20008/09, Government interventions like the Coronavirus Job Retention Scheme, Self Employment Income Support Scheme, and £20 per week increase of Universal Credit have protected jobs and incomes, and this will support a recovery.