The Distributional Impact of the Pandemic in the UK

In this paper, Sinem Hacıoğlu Hoke, Diego R. Känzig, and Paolo Surico show that the top quartile of the income distribution accounts for almost half of the pandemic-related decline in aggregate consumption, with expenditure for this group falling much more than income. In contrast, the bottom quartile of the income distribution has seen the smallest spending cuts and the largest earnings drop but their total incomes have fallen by much less because of the increase in government benefits. The decline in consumers’ spending preceded the introduction of the lockdown, whose partial lifting has triggered a stronger recovery in sectors with a lower contact rate. The largest spending contractions are concentrated in the most affluent regions. These conclusions are based on detailed high-frequency transaction data on spending, earnings, and income from a large fintech company in the United Kingdom.

Key Results

• The authors find a drop in aggregate spending driven by high-income households (figure 2).
• They also find a drop in earnings largest for low-income people (figure 2).
• High-income households saw a disproportionate increase in their savings whereas less affluent households had to either borrow/run down their stock of savings (if any) or rely on government benefits to support their spending (figures 3 and 4).
• The collapse in spending started before the introduction of lockdown (figure 6).

Figure: The Distributional Impact of the Pandemic

This figure shows how personal savings were impacted by the pandemic. We see the percentage decline in earnings, income, and expenditure in June 2020 relative to June 2019, for users with different after-tax income in 2019. It also sheds light on the implied saving rates across these groups.

Contacts:

Authors

• Sinem Hacıoğlu Hoke (Bank of England. King’s College, London – Data Analytics for Finance and Macro): sinem.hacioglu@bankofengland.co.uk
• Diego R. Känzig (London Business School): dkaenzig@london.edu
• Paolo Surico (London Business School and Center for Economic and Policy Research): psurico@london.edu

Media inquiries

• Olivia Ronsain: olivia.ronsain@wid.world; +33 7 63 91 81 68

Acknowledgments

The authors are grateful to Andrea Galeotti, Atif Mian, Elias Papaioannou, Amir Sufi, Matthew Waldron and Tom Waters for useful comments and suggestions. They thank Francesco Amodeo and Sebastian Hohmann for valuable research assistance. The views expressed are those of the authors and do not reflect those of the Bank of England or any of its Committees. Authors do not have any personal conflict of interest with the company that have provided the data. Surico gratefully acknowledges financial support from the European Research Council (Grant 771976). All data have been anonymized at the source by the data provider.