The Impact of COVID-19 on Household Finances - UK - April 2021
Overview
 
27% of people in work or retirement have experienced a reduction in income since the start of the COVID-19 outbreak, while 17% have seen their pay go up and 55% say their income has remained stable. The uneven distribution of furloughs and job losses, concentrated primarily among low-skilled workers, has deepened income inequality during the outbreak. This will shape the course of the recovery and result in different outcomes for different consumer groups.

Despite the massive disruption caused by COVID-19, consumers’ financial wellbeing has steadily risen on the whole over the last year. Similarly, consumer confidence has recovered to a historic high level, having fallen sharply during the initial lockdown. While those who have been affected by job losses and other vulnerable consumers have suffered financially as a result of the pandemic, the overall picture shows that most households have made it through the worst of the crisis with their finances intact. Indeed, many have been able to boost their savings, with record deposits seen during the outbreak.

Looking ahead, unemployment is still expected to rise in the coming months as state support for businesses and workers is withdrawn. This will clearly threaten some household finances, but most should be fine. For consumer-facing businesses, another threat is how willing consumers will be to spend their new or enhanced savings. 

On the whole, though, consumers are expected to use at least some of their increased savings to spend on treats in the post-pandemic economy. Experiences look set to benefit the most, with consumers prioritising holidays and smaller treats for themselves and family over saving and big-ticket purchases.

Key issues covered in this Report
●	The impact of COVID-19 on financial wellbeing and consumer confidence.
●	The impact of COVID-19 on work, including experiences of furloughs, job losses and changes in income
●	Consumers’ spending habits during the pandemic, including cutting back on non-essential spending and big-ticket purchases, and savings activity
●	Consumers’ spending priorities for the post-pandemic environment.

COVID-19: market context
The first COVID-19 cases were confirmed in the UK at the end of January 2020, with a small number of cases in February. Rapidly rising case numbers led to the first national lockdown, starting on 23 March. It wasn’t until 15 June that non-essential stores were allowed to reopen, followed by pubs, restaurants, hotels and hairdressers on 4 July and many beauty businesses on 13 July.

By September, it had become clear that the UK was at the start of a second wave, and social distancing measures were intensified. Continued increases in infection numbers led to Wales implementing a two-week national lockdown from 19 October, England announcing a month-long lockdown from 5 November and Scotland introducing a new five-level system of coronavirus restrictions.

Despite these restrictions, however, case numbers continued to increase. All four UK nations tightened restrictions further in January 2021, effectively leading to a full UK-wide lockdown.

On 22 February, Boris Johnson announced the roadmap to an easing of restrictions in England, starting with the reopening of schools on 8 March, followed by easing of restrictions on outdoor gatherings on 29 March and with a hoped end to all restrictions by 21 June. The Welsh and Scottish governments also gave more details on their plans to ease restrictions, with both nations taking a slightly more cautious approach to the one planned for England.

The UK’s vaccination programme started on 8 December 2020, and with the Pfizer-BioNTech, Moderna and Oxford-AstraZeneca vaccines licensed for use in the UK, the government achieved its aim to offer a first dose of the vaccine to 32 million people by mid-April and now aims to offer a first dose to all remaining adults – approximately 21 million people – by the end of July.

Economic and other assumptions
Mintel’s economic assumptions are based on the Office for Budget Responsibility’s central scenario included in its March 2021 Economic and Fiscal Outlook Report. After the fall of 9.9% over the course of 2020, the scenario suggests that UK GDP will grow by 4% in 2021 and 7.3% in 2022. 

GDP isn’t expected to return to pre-COVID-19 levels until Q2 2022, although this is six months earlier than the OBR forecast in November 2020, mainly because of the faster-than-expected rollout of vaccines. The recovery in GDP is expected to be fuelled by a rise in consumer expenditure, which dropped by 11% in 2020 as many opportunities for household spending were cut off.

Unemployment is expected to peak at 6.5% in Q4 2021. As with GDP, this is more positive than the OBR’s November forecast, but the OBR does raise the prospect of long-term scarring on employment, especially in the more exposed retail and hospitality sectors.