Context

The coronavirus pandemic has forced UK Government to introduce unprecedented measures. As a credit-reporting agency, Experian has been tracking the virus’ impact on the UK economy, and the businesses and consumers that drive it. The company has always paid close attention to credit and economic trends, as well as closely tracking market conditions and needs, but the pandemic has seen an increase in the need to understand change, the cause of that change, and how it impacts risk. The report has been published in the public interest, to help firms understand the breadth of change and requirements needed in order to better support, and protect, consumers and businesses nationally.

The study

The goal of the study was to look in depth at how the measures put in place to combat coronavirus have affected consumers and markets: the impact on household finances, spending and borrowing behaviours, and what that means for lenders.

The methodology was as follows:

• Analysis of Experian’s own credit reporting data
• B2C research conducted throughout the pandemic, including surveys conducted in partnership with YouGov, and Experian’s own online survey run in December 2020 with 2,013 adults from across the UK.
• Independent market analysis from external sources.
• B2B research commissioned with third parties and via Experian’s own market engagement programme.

Key findings

• The poorest households were hit the hardest from a wage perspective but as they also receive benefits, their overall incomes remained more stable; the middle income band was impacted the most. Emergency payment holidays have been widely used, and there is a risk of many of these becoming delinquent. Some people have not been affected, and have even been able to save – and the differences between peoples’ situations could be divisive.
• After decline during the first lockdown, credit applications and new lending recovered well, with mortgage lending back up to pre-Covid levels. Lenders are likely to tread carefully over the next couple of years as the impact of the economic shock plays out. Retail sales are high, but consumer spending overall is down.
• Changes to the way we pay have been accelerated: a reduction in using cash and an increase in online shopping leading to a surge in ‘buy now pay later’ methods. There is a focus on affordability, as well as a trend towards instant gratification.
• Take up of digital channels such as mobile banking apps grew out of necessity, but is likely to be here to stay. , and people are becoming more confident in using digital. People are likely to continue to work from home, and commuting will decline. Lenders will need to go further with digital transformation to provide more effective solutions.
• The key challenges for lenders will be.
• Identifying future risk
• Finding pockets of opportunity

Points to consider

• Very few details are given of the methodology, or of the experts who were consulted to contribute, so it is hard to make an assessment. Experian are data experts, so it is likely that the analysis was highly skilled.
• Highly topical and relevant.
• This study is focused on the UK. Other countries responses to the pandemic have been different so it is unlikely that the findings will be transferable elsewhere.
  • The report is aimed primarily at businesses who extend credit but will be of interest to anyone studying the impact of the pandemic on the UK economy.