Tag: household behaviour

How does lower inflation uncertainty affect households’ financial behaviour?

Christoph Herler and Philip Schnattinger

Macroeconomic Environment Theme

The Bank of England Agenda for Research (BEAR) sets the key areas for new research at the Bank over the coming years. This post is an example of issues considered under the Macroeconomic Environment Theme which focuses on the changing infaton dynamics and unfolding structural change faced by monetary policy makers

The recent inflation surge has sparked concerns about how uncertainty over price dynamics shapes households’ financial behaviour. Often, lower uncertainty about inflation coincides with lower expected inflation – when inflation is low and stable, households feel more confident about future trends. In a new paper, Johannes J. Fischer, Christoph Herler and Philip Schnattinger employ a randomised controlled trial (RCT) to disentangle the effects of households’ uncertainty about inflation from the expected level. This disentangling is important: lower expected inflation can discourage immediate spending, while lower inflation uncertainty may push them towards spending more. We show that reduced inflation uncertainty leads to higher planned spending, lower saving rates, and a shift towards liquid assets with fixed returns.

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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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