Consumption effects of mortgage payment holidays during the Covid-19 pandemic

Alexandra Varadi and and Bruno Albuquerque

Mortgage payment holidays (PH) were introduced in March 2020 to help households who might have struggled to keep up with mortgage payments due to the pandemic. It allowed a suspension of mortgage principal and interest repayments for a maximum of six months, without affecting households’ credit risk scores. Given the novelty of the policy, we study in a new paper whether mortgage PH have supported household consumption during the pandemic, especially for those more financially vulnerable. Using transaction-level data, we find that temporary liquidity relief provided by PH allowed liquidity-constrained households to maintain higher annual consumption growth compared to those not eligible for the policy. We also find that PH led more financially stable households to increase their saving rates, not their consumption.

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Citizens’ advice: lessons from the public

Kel Nwanuforo, Andrew Mills and Sharon Raj

The Citizens’ Panels (now the Citizens’ Forum) is a Bank of England discussion forum to engage with the UK public on important topics such as the labour and housing markets, or climate change. It included a forecasting competition, and Bank Underground invited the winners to contribute short pieces about how they evaluate the UK economy, discuss issues of their concern, and to propose solutions.

Part of Bank Underground’s purpose is to give a platform for views from Bank of England (‘Bank’) analysts that may differ from those of the Bank or its policy committees. Alternative views are encouraged within the Bank, but the range of opinions and ways of thinking by analysts is likely to be limited to some extent: by education, experience and less tangible factors such as the language analysts use to explain their thoughts. The Citizens’ Panels therefore offer a rich source of information. By now, they include some 3,200+ participants with a wide range of backgrounds: some are familiar with economics and central banking but many may know little about either. This blog represents the voices of some of those panel members about the UK economy, and how they addressed the forecasting challenge, which we put in front of participants as part of the Citizens’ Forum online community – which by-the-way is open to all.

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Remote working, bargaining power and productivity

Lena Anayi

Remote working soared during the Covid-19 (Covid) pandemic. Over half of British workers worked from home during the initial Covid lockdowns (first panel in Chart 1). And by February this year, nearly a third of workers were still doing so at least some of the time. But will this last? In this blog post, I explore firms’ and workers’ attitudes to remote working, the extent to which these may differ, and factors that might affect negotiations between them on future remote working arrangements.

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Financial concerns and the marginal propensity to consume

Georgina Green and Bruno Albuquerque

How would you respond to a one-off change in your income? For example, how would you react to someone handing you £500? Throughout the pandemic a large group of UK households were asked this hypothetical question in a survey. Households were also asked for other information, for instance about their debt, savings, and expectations for the future, giving us an opportunity to unpick their responses. We might expect households who are concerned about their financial future to be less eager to spend than others, preferring to save up for rainier days. In a new paper, we find the opposite result: concerned households would in fact spend around 20% more than others.

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The impact of shipping costs and inflation

Tugrul Vehbi, Serdar Sengul, Daniel Christen, Lucio D’Aguanno and Tom Wise

Shipping costs have increased sharply since the onset of the pandemic, to a magnitude perhaps only a few would have predicted. In this post, we examine the likely drivers and impact of this increase. We argue that (i) both demand and supply factors are responsible for these developments with the former playing a relatively bigger role historically; (ii) shipping costs feed through to consumer prices with a lag; and (iii) therefore, we may expect to see further price pressures in some advanced economies (eg the US and the euro area) from recent surges in shipping rates.

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Sluggish deposit rates and the effects of monetary policy

Alberto Polo

Could the slow response of deposit rates to changes in monetary policy strengthen its impact on the economy? At first look, the answer would probably be ‘no’. Imperfect pass-through of policy to deposit rates means that the rates on a portion of assets in the economy respond by less than they could. But what if this meant that the rates on other assets responded by more? In a recent paper, I develop a model that is consistent with a number of features of banks’ assets and liabilities and find that monetary policy has a larger effect on economic activity and inflation if the pass-through of policy to deposit rates is partial.

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The Bank of England’s 2022 Priority Topics for research

Alongside our multi-year ‘Bank of England Agenda for Research’, the Bank also publishes a set of ‘Priority Topics’, which change each calendar year. The new 2022 Priority Topics are now available on the Bank’s website (see ‘2022 Priority Topics’ under each theme).


Rebecca Freeman, Managing Editor.

Household debt and labour supply – a new labour market channel

Philip Bunn, Jagjit Chadha, Thomas Lazarowicz, Stephen Millard and Emma Rockall

Does higher household debt lead to greater labour supply? Ahead of the Global Financial Crisis (GFC), UK household debt rose considerably. Since that crisis, the UK labour market has experienced high employment and high participation, alongside relatively weak wage growth. Might these observations be evidence that higher debt leads to higher labour supply? In a recent Working Paper, we attempt to answer this question. We do find a significant channel by which households with higher debt increase their labour supply in response to negative income shocks by more than households with lower (or no) debt. But, we do not think the effect is strong enough to explain the post-crisis strength in employment and participation at the aggregate level.

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(Some of) The macroeconomics of working from home

John Lewis

Increased working from home (WFH) for public health reasons during the pandemic has spawned a debate about whether this shift might become permanent. In this post, I try to sketch out some of the (macro) economics of a longer-run post-pandemic shift towards more WFH. I argue that: i) on consumption, it won’t affect aggregate expenditure, it will just reallocate it across space and sectors ii) in property markets, effects hinge on supply responses; iii) for output, cost-savings to firms from cutting back office space don’t translate one-for-one into GDP gains.

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Did the Covid-19 local lockdowns reduce business activity in the UK?

James Hurley and Danny Walker

In 2020 governments around the world responded to Covid-19 (Covid) by introducing lockdown measures that were designed to slow the spread of the virus. Business activity fell materially. But it is difficult to isolate the impact of the local lockdown measures on business activity, given that business activity was affected by other factors such as voluntary social distancing at the same time. In this post we compare UK small and medium enterprises (SMEs) located close to the borders of – but not within – local lockdowns with similar businesses just inside, and conclude that the local lockdown measures causally reduced turnover growth by 8 percentage points relative to businesses outside of the lockdowns, driven by restaurants and non-food retail. Average turnover growth over the period was around -20%, which implies that the lockdowns accounted for only two fifths of the overall drop in business activity at most.

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