Bank of England – Household Debt and Covid

The latest Bank of England quarterly bulletin looks at household debt and Covid.

The bulletin reports that Covid-19 (Covid) has had an unprecedented impact on the UK economy. In the past, economic shocks have been amplified by household debt, as more highly indebted households cut back sharply on their spending or defaulted on their debts.

There is little evidence that – so far at least – household debt has amplified the Covid recession. This is likely to reflect the particular nature of the crisis and the unprecedented policy interventions – such as income support and payment deferrals – which have supported household finances.

Some households, particularly those with unsecured debt, have reported being in financial difficulty and will be more vulnerable to future shocks. They are less likely to have savings or to have been able to accumulate savings through the pandemic.

There is a risk that household debt may play a bigger role in the Covid crisis. This will depend on the evolution of the pandemic and the resulting pace of economic recovery, which remain uncertain. It will also depend on how governments, households, businesses and financial markets respond to these developments.