1. Main Points

  • After the largest quarterly contraction on record of 20.5% in Quarter 2 (Apr to June) 2020, household expenditure is now 3.6% above its pre-coronavirus (COVID-19) pandemic level in Quarter 4 (Oct to Dec) 2021; household income remained above pre-coronavirus pandemic levels throughout 2021.

  • Household bank deposits saw a £65.6 billion decline in 2021, likely because of increased spending opportunities and consumer confidence; this followed a record rise of £126.9 billion in household deposits in 2020, as there was an increase in forced savings in response to coronavirus pandemic restrictions.

  • Private non-financial corporations (PNFC) dividends bounced back by 20.1% in 2021, following a 26.3% decline in 2020; dividends remained 11.4% below pre-coronavirus pandemic levels.

  • The total number of company insolvencies registered in 2021 increased by 11% compared with 2020, but remained 18% below pre-coronavirus pandemic levels.

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2. Overview

The tightening and loosening of lockdown measures and social distancing policies over 2020 and 2021 affected the income and expenditure of households and businesses (Figure 1). There were also changes in their holdings of financial assets and liabilities over this 2-year period, which help explain the changes in their net lending and borrowing positions.

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3. Impact on households

Before the coronavirus (COVID-19) pandemic, householders were net borrowers for three consecutive years, as their combined consumer and capital expenditure was larger than their net incomes. However, households switched to net lending in 2020 (Figure 1), as there was a 9.9% decline in household expenditure, which was curtailed by both public health restrictions and reduced desire for discretionary spending. This was driven by a fall in "social consumption" as restrictions limited mobility. In contrast, there was a relatively smaller impact on household income, primarily reflecting the impact of government income support schemes.

In 2021, households remained net lenders but almost halved their net lending position from 2020. This was primarily driven by an increase in household consumer spending of £112 billion, particularly in restaurant and hotel spending, and discretionary transport spending. However, the pattern of spending on goods and services has not yet returned to where it was prior to the coronavirus pandemic. Households have currently not switched back to pre-coronavirus pandemic net borrowing. More detail is available in our Coronavirus (COVID-19) and its effects on household consumption, UK: January 2020 to December 2021 article.

At the end of 2021, despite the emergence of the Omicron variant, household expenditure continued to grow and remained 3.6% above its pre-coronavirus pandemic level in Quarter 4 (Oct to Dec) 2021. This was driven by a rise in spending on transport, net tourism, and housing and utilities, with household spending on goods recovering faster than spending on services.

The relatively low fall in household income in Quarter 2 (Apr to June) 2020 (Figure 2), compared with what we may have expected given the size of the decline in GDP, primarily reflects the impact of the Coronavirus Job Retention Scheme (CJRS). The CJRS was introduced in March 2020 and helped maintain household income through the government subsidising up to 80% of corporations' payment of wages and salaries. The Self-Employment Income Support Scheme (SEISS) also played a role in supporting income in the form of grants to the self-employed, who form part of the household sector.

Table 1 shows the profile of these income transfers between the government and, ultimately, households, where take-up of these subsidy payments track the stringency of public health restrictions over these two years.

Gross disposable household income (GDHI) continued to increase above pre-coronavirus pandemic levels in 2021. GDHI grew by 3.7% in 2021, compared with 0.6% in 2020. This was underpinned by an increase in wages and salaries, which itself was driven by earnings growth in the private sector. When the impact of inflation is removed, real households' disposable income grew by 1.1% in 2021.

There was a surge in household savings in Quarter 2 2020. This reflects how it was not only intertemporal and precautionary motives underpinning the change in savings behaviour; lockdown restrictions also led to forced savings, contributing to the record increase in the saving ratio. More detail is available in our Economic modelling of forced saving during the coronavirus (COVID-19) pandemic article.

These effects can also be seen in Quarter 1 2021, as the reintroduction of lockdown restrictions led to the household saving ratio increasing by 4.3%. As restrictions eased again in Quarter 2 2021 and restrictions in England ended in Quarter 3 2021, the saving ratio declined to 6.8% in Quarter 4 2021.

Following a record £126.9 billion increase in the acquisition of deposits in 2020, households experienced a £65.6 billion decrease in 2021. The record increase in the acquisition of deposits in Quarter 2 2020 highlighted the impact of public health restrictions on spending opportunities, as well as households raising their savings as a buffer against high levels of uncertainty. The decline in bank deposits seen in 2021 (Figure 4) may largely be driven by the easing of coronavirus pandemic restrictions and increased individual confidence from the implementation of the vaccination programme. This likely reduced some of the consumer caution around the virus itself, as discussed by the Bank of England. These higher levels of accumulated savings over the coronavirus pandemic are likely to be important in understanding how households respond to the higher cost of living.

The easing of restrictions and increased individual confidence may also explain the increase in the incurrence of liabilities seen in 2021. Figure 4 also shows a large increase in the acquisition of "other" assets, specifically a rise in equity and investment fund shares and units, and household pension entitlements. Therefore, at the end of 2021, currency and deposit holdings for households remained 2.7% above pre-coronavirus pandemic levels.

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4. Impact on businesses

Non-financial corporations (NFC), which includes public and private NFC, further increased their net lending in 2021 (Figure 1). This was driven by a £19.6 billion increase in private non-financial corporations (PNFC) net property income, which is primarily the earnings from interest on savings and dividends from shares.

In the non-financial account, gross operating surplus (GOS) experienced an increase in 2021, but overall national income increased by more. The GOS of PNFCs therefore saw a 0.5% decline as a percentage of gross domestic product (GDP) in 2021, following a 0.7% increase in 2020. The withdrawal of the Small Business Grant Fund (SBGF) in early October 2021, which provided eligible small businesses in England one-off grants of £10,000, helped support PNFC GOS relative to national income in 2020. Table 2 shows the profile of the SBGF transfers between local government and all other domestic sectors, where take-up of these subsidy payments tracks the stringency of public health restrictions over these two years.

Figure 5 also shows the increase in capital expenditure experienced by PNFCs in 2021. GCF of PNFCs as a percentage of GDP saw a 0.1% increase in 2021, following a 0.9% decline in 2020. The increase seen cannot be isolated but looking at business investment, which includes the public corporation and household sectors, it is most likely because of increases in ICT equipment and other machinery and equipment. More detail is available in our Business investment in the UK: October to December 2021 revised results article.

This likely reflects the impact of lifting coronavirus (COVID-19) pandemic restrictions on sales revenues and cash positions, as well as the effects of greater confidence around the level and composition of future demand. This was likely offset by the stock and supply chain issues experienced in 2021. More detail is available in our Stock and supply chain issues in the UK: Quarter 1 2018 to Quarter 4 2021 article.

As nominal GOS increased in 2021, PNFCs experienced a 20.1% bounce back in dividend payments in the same period. This followed a 26.3% decline in 2020, but remained 11.4% below pre-coronavirus pandemic levels. This bounce back in dividend payments may partially be owing to the withdrawal of the Coronavirus Large Business Interruption Loan Scheme (CLBILS) and the COVID Corporate Financing Facility (CCFF) in Quarter 2 (Apr to June) 2021. The CLBILS required some businesses to not pay dividends until the facility had been paid off in full. Larger firms who were also eligible for the CCFF received short-term funding, providing they made a commitment to restrain on their capital distributions and senior pay.

Within the financial account, Figure 7 shows PNFCs decreased their bank deposits by £156.5 billion in 2021, following a £197.0 billion increase in 2020. This can be linked to the increase in capital expenditure PNFCs, shown in Figure 5, which reflects the impact of lifting restrictions and consumer confidence on sales revenues, cash positions, and consumer demand.

Despite this, the total number of company insolvencies registered in 2021 increased by 11% compared with 2020, but remained 18% below pre-coronavirus pandemic levels (Figure 8). This was driven by the highest annual number of Creditors' Voluntary Liquidations (CVLs) since 2009. The increase in CVLs in the second half of 2021 coincided with the phasing out of the CJRS.

In addition, the suspension of wrongful trading liability, which allowed directors to continue trading without facing the threat of personal liability despite uncertainty that their company may not be able to avoid insolvency in the future, ended on 30 June 2021. The withdrawal of these and other government support schemes may explain the increased levels of insolvencies.

Figure 9 shows the increase in NFCs bank deposits in 2020. NFCs also increased their incurrence of financial liabilities in the form of debt securities, loans, equity investment fund shares and units, and employee pension schemes. In 2021, NFCs experienced a substantial decrease in their acquisition of currency and deposits, reflecting the impact of lifting restrictions and greater confidence; however, they still remained 1.8% above pre-coronavirus pandemic levels.

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5. Coronavirus and the impact on UK households and businesses data

Quarterly sector accounts, UK: October to December 2021
Dataset | Released 31 March 2022
Detailed estimates of quarterly sector accounts that can be found in the UK Economic Accounts (UKEA).

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6. Glossary


Refers to private non-financial corporations.

Pre-coronavirus pandemic level

Refers to Quarter 4 (Oct to Dec) 2019.

Net lending or borrowing

The net lending of a sector represents the surplus resources that a sector makes available to other sectors. Net borrowing represents their financing of a deficit from other sectors.

Gross disposable household income (GDHI)

The estimate of the total amount of income that households have available to either spend, save, or invest. It includes income received from wages (and the self-employed), social benefits, pensions and net property income less taxes on income and wealth.

Real household disposable income (RHDI)

Adjusting GDHI to remove the effects of inflation gives RHDI. This is a measure of the real purchasing power of households' income, in terms of the physical quantity of goods and services they would be able to purchase if prices remained constant over time.

Intertemporal saving

Saving used to transfer resources across time to fund future consumption.

Precautionary saving

Saving used as a buffer to protect against unexpected changes in resources.

Forced saving

Saving resulting from the inability to consume because of government restrictions on physical movement and social interaction during the coronavirus pandemic.

Households' saving ratio

Households' saving as a percentage of total available household resources.

Gross operating surplus (GOS)

Gross operating surplus is the portion of income derived from production by incorporated enterprises that are earned by the capital factor.

Gross capital formation (GCF)

Gross capital formation consists of gross fixed capital formation, changes in inventories, and acquisitions less disposals of valuables.

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7. Data sources and quality

Quality and methodology information on strengths, limitations, appropriate uses, and how the data were created is available in the our Quarterly sector accounts Quality and Methodology Information report.

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Contact details for this Article

Imogen Cartwright, Paige Hunter
Telephone: +44(0)1633 456366