This analysis looks at how unexpected changes in income impacted consumers during the Covid-19 pandemic.
Read the Research Note (PDF)[1]
Our economic analysis looks at how the Covid-19 pandemic impacted consumer welfare, how consumers responded to different types of income shock in terms of saving, consumption, and borrowing behaviours, and whether income shocks can lead to financial distress.
On average, we found:
- consumers were resilient to negative income shocks
- consumers made sensible financial decisions and efficient use of credit when experiencing income shocks
- permanent negative shocks led to consumers cutting back on consumption
- transitory negative income shocks led to increased borrowing, but without increasing the probability of arrears.
As part of the FCA’s commitment in the Consumer Duty[2], we are focused on how firms can offer support to consumers that face changes in circumstances that lead to them becoming vulnerable.
Authors
Jonathan Shaw, Andrea de Mauro, Khashayar Rahimi, Sam Hainsworth
Disclaimer
Research notes contribute to our work by providing rigorous research results and stimulating debate. While they may not necessarily represent the position of the FCA, they are one source of evidence we may use to discharge our functions and inform our views. We strive to ensure research outputs are accurate, through checks including independent referee reports, but the nature of such research and choice of research methods is a matter for the authors using their expert judgement. To the extent that research notes contain any errors or omissions, they should be attributed to the individual authors, rather than the FCA.