Written by Kunal Sawhney, Kalkine Media
Consumer spending has been a key driver for the economy, it becomes even more important during the time of any crisis, be it a financial setback, or a climatic disaster, or an unforeseen event like the Covid-19 pandemic.
During the first 12 months of the pandemic, there has been wild shifts in the spending patterns as the employment activity remained on the edge with some firms digging various measures of retaining the talent, while, at the same time, others were chalking out plans to shelve the extant employee strength in a desperate bid to reduce the employee benefit-related expenses as a part of larger cost reduction plans.
According to a latest survey conducted by the Office for National Statistics (ONS), there was a 19% reduction per week by UK households during the year to March 2021, which nearly equates to £109.10 a week.
The repeated blows from the Covid-induced restrictions on domestic movement, curtailed business hours for retail stores, unavailability of high-speed network in remote locations, coupled with the reduced wages and overall household income collectively brought down the consumer spending in the pandemic era.
Irrespective of a few very essential goods and services, all other non-conventional offerings have struggled to survive as consumers were quite unwilling to spend on non-essential things, given the evolving nature of Covid-19 (SARS-CoV-2) virus and uncertainty about the guidance from the government.
The survey has revealed that the restricted access to certain goods and services during various intervals, as a part of broader curbs, saw major reduction in spending in the corresponding period. The average household spending was reduced to more than one-fifth of the usual during the peak of the first national lockdown as everybody turned so skeptical about the forthcoming challenges.
As a result of heavy reduction in spending, the national economy suffered the worst contraction on record in the calendar year 2020, even when the commercial activities remained normal during the initial two-and-half months, while there were partial resumption after July of 2020.
There were a number of reasons that instated reduced monthly expenses including the ever-extending work from home regime, steep fall in the hospitality offerings by high income earners as all the settings were told to cease their offerings as authorities feared that gatherings in large numbers will potentially spike the number of infections.
This step turned out quite profitable as it significantly helped in arresting the outbreak of cases, but, on the other hand, the enterprises operating within the hospitality industry witnessed the worst of times.
Notably, the spending by high income households saw the biggest drops during the same period as compared to the reductions by low income households. In the 12 months to March, nearly a third of workers witnessed a reduction in the monthly income streams.
The pandemic restrictions and the social distancing guidelines mandated by the government and the substantial changes in consumer behaviours alongside the constant battle with the uncertain challenges of Covid drastically impacted the spending even when the earnings were supported by the furlough scheme.