Consumption in the time of a pandemic: tracking UK consumption in real time

Sinem Hacioglu Hoke, Diego Kaenzig and Paolo Surico

The response to the Covid-19 pandemic has included closure of retail outlets and social distancing. How large was the resulting consumption fall in the UK? In a new paper, we try to answer this question using a transaction-level dataset of over 8 million individual transactions. This gives a near-real time read on consumer spending, without the publication lags associated with national accounts consumption data. We find that the bulk of the fall had occurred before legally mandated lockdown started. The largest declines occurred in retail, restaurants and transport, but spending on some items such as online shopping, alcohol and tobacco rose. There is substantial variation in change in consumption across age, income group, housing tenure and local authority.

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Housing consumption and investment: evidence from the Help to Buy scheme

Matteo Benetton, Philippe Bracke, João F Cocco and Nicola Garbarino

Academics have made the case for mortgage products with equity features, so that gains and losses due to fluctuations in house values are shared between the household and an outside investor. In theory, the equity component expands the set of affordable properties, without increasing household debt, and default risk. These products have not become mainstream, but in a recent paper, we study a large UK experiment with equity-based housing finance — the Help To Buy Equity Loan scheme. We find that equity loans are mainly used to overcome credit constraints, rather than to reduce investment risk. Unconstrained household prefer mortgage debt over equity loans, suggesting optimism about house price risk. Equity loans could still contribute to house price inflation: we don’t find evidence that houses purchased with equity loans are overpriced, but an assessment of the aggregate effects is beyond the scope of the paper.

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How will households react to the real income squeeze?

Philip Bunn and Jeremy Rowe

Rising inflation is eroding the spending power of UK households’ incomes.  How will they react to that?  The answer will make a big difference to the economic outlook.  Will they dip into savings and carry on buying the same amount of goods and services, or will they just spend the same and be able to buy less with it?  New survey evidence suggests that households intend to do a bit of both with nominal spending increasing by around half of the rise in prices but real consumption also falling.  But not all households say they will respond in the same way: households with debts and limited savings to fall back on are less likely to be able to increase spending.
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Less is more: what does mindfulness mean for economics?

Dan Nixon.

Economic theory generally assumes that more consumption means greater happiness. This post puts forward an alternative, “less is more” perspective based around the concept of mindfulness. It argues that we may achieve greater happiness by seeking to simplify our desires, rather than satisfy them. The result – less consumption but greater wellbeing – could be especially important for debates around secular stagnation and ecological sustainability.

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