Londoners Spent the Least During the Lockdown

Summary

• Affluent sections of the British society have spent a lot less during the lockdown than the low- and medium-income groups
• London and South East England witnessed the least amount of household expenditures during the lockdown period than the rest of the country
• Evidence suggests that financial support measures rolled out by the government for the low- and middle-income category citizens may have had a part to play, in parts of the country where spending was high.

A recent report from a combined analysis of London School of Business and economists of Bank of England has found that the more affluent sections of the British society have spent a lot less during the lockdown than the low and medium-income groups. The analysis found that before the onset of the pandemic high-income households accounted for almost 35 per cent of the total expenditure, but as soon as the pandemic hit their spending levels reduced by almost half. The analysis was conducted by researchers using data collected from the Money Dashboard fintech app, which directly connects to people’s bank accounts and provides anonymous data of income, earnings, and expenditure. Though the sample size was small of only 8,365 people but it gave ample idea of the spending patterns and behaviour of different sections of the country during the COVID- 19 crisis.

High-Income group spending least while, while low to mid-income group spent more

The analysis pointed out one major distinction in the spending behaviour between the rich and the lower- and middle-income class people. A large proportion of the income of the lower- and middle-class people is spent on essential items which are very difficult to avoid, while as income levels go up, the nature of expenditure becomes more discretionary. So, while on the lower side businesses located in places where more low- and mid-income people lived enjoyed moderate business during the lockdown, the businesses located in high-income localities experienced a larger downturn.

Volume-wise also the effect of the above had a major impact on the total spending of the entire country. Rich people are too few people having large purchasing power, whereas low- and middle-income groups are a large number of people of small to moderate size purchasing power. So, when viewing in totality, not much drastic difference may be visible in the total spending levels of both groups; however, when a situation like pandemic strikes, the difference levels become very stark.

Among the different regions, London, south of England and south-east of England saw the sharpest drop in household spending levels and east midlands, wales and Northern Ireland saw the lowest drop in the household spending levels. Against the national average of 34 per cent drop in household spending, London saw a drop of 45 per cent while Northern Ireland saw a drop of 10 per cent. A more specific locality level analysis showed that Hampshire, Surrey, Greater London, Berkshire, and Aberdeen showed a drop in expenditure levels of as high as 48 per cent, over Belfast, Scottish highlands and Wales registering a drop of less than 16 per cent.

The impact of the spending behaviour on different industries

With the change in income levels, the nature of expenditure levels also changes. So, while the lockdown was in place in the country, people were forced to spend only on essentials and escaping others. Industries like food and beverages thus did not see much fall in their revenue levels as physical retailing of these goods was soon replaced by a meteoric rise in online purchasing and distribution of essentials. However, for other common forms of expenditure like clothing, electronics, furniture & accessories and eating out, the expenditure fell to an extremely lower levels because of the lockdown restrictions. For these expenditures, most consumers thought fit to postpone the decision till better conditions prevailed with the hit coming from richer households more than small and medium-income households, as they spend more on these goods. Hotel, recreation, eating out, high-end apparel and accessories, automobiles, consumer durables and electronics industries were thus hit very badly because of the lockdown as their bottom lines rely heavily on high volumes.

As soon as the lockdown was reopened, there was a dramatic turnaround in the demand situation facing different commodities. The pent up demand for many of the consumer durables and other non-essentials which had been building up for a period of six weeks suddenly pushed their demand in the next two months since the opening of the lockdown.

What is interesting to note here is that the study found no link between regional spending patterns in an area or how hard an area has been hit with the pandemic with the household spending levels. Hence it is strongly indicated that withholding of expenditure by high-income households could be the reason behind the slowdown in the country’s slow demand uptake.

Conclusion

It was observed through the report analysis that the government incentives rolled out since March has been the major drivers of consumer demand during the lockdown and after the lockdown. As the government benefits still continue to be passed on under the various stimulus schemes, demand levels will remain high, during which the government expects the economic situation in the country to improve.

The improvement in the pandemic situation in the country will also be a big factor in ramping up the demand levels for essential and non- essential consumer goods. As of now, the way things stand the spread on the pandemic in the country has slowed down significantly, giving confidence to the people to come out of their homes to go to their work or visit any commercial establishment. Though the lockdown has opened, and the government is encouraging people to come out of their homes, but with strict social distancing measures implemented across the country. The continuing risk of infection and the threat of a resurgence of the pandemic in the upcoming winter could seriously undermine the recovery efforts of the country. The only silver lining among all the pandemonium regarding the pandemic is the early availability of an effective vaccine, which will bring down the threat levels in the country and bring life back to normal.