Are households’ shape-shifting spending patterns here to stay?

With the country under COVID-19 restrictions for much of 2020, some of UK households’ consumption patterns also shifted dramatically. The chart above* shows the detailed expenditure categories that increased and decreased the most between the fourth quarter of 2019 and 2020. My earlier post looked at changes at a more aggregated level and highlighted big drops in transport and hospitality expenditure. Air travel — one of the bigger individual categories at £ 100 per head per quarter in 2019 — was done to practically nothing (£9 per head in fourth quarter 2020).

[* I have included the same chart twice — at the top and at the bottom of this post — so that it is easier to refer to while reading the text.]

Looking at the data at a more granular level is also telling. The consumption of medical and pharmaceutical products in the fourth quarter of 2020 (compared to fourth quarter in 2019) went up by 78% and 31%, respectively, while expenditure on medical, paramedical and dental services dropped by 27%, 34% and 49%, respectively. This suggests that reduced access to healthcare caused many people to use products they could purchase at the pharmacy instead. [“Other medical products” includes thermometers, plasters, bandages, dressings, syringes, body supports, and non-oral contraception, and “pharmaceutical products” includes drugs, medicines, serums, vaccines, vitamins and other oral products.]

The “nesting” trend is also clearly visible, with large increases in spending on goods related to home improvement — such as tools and materials— and home entertainment — such as screens, DVDs, cameras, and computers. [The naming of the categories that the ONS uses seems to be from quite a while ago, and even the detail of what is included in which category seems only to exist until 2014. I’m guessing that, for example, streaming services will have been captured in the category called “Recording media”.]

Many people’s anecdotal experiences have also pointed to increases in alcohol consumption in 2020. While expenditure on spirits, beer and wine purchased for home did increase by 20–30%, the overall impact is hard to gauge from these statistics, because of the large drop in spending on restaurants and bars. I haven’t done extensive research into the topic, but at least some reports suggest that here, too, we see a polarisation of behaviour: people who were already drinking less reduced their consumption, whereas heavy users of alcohol increased both the frequency and amount of drinking.

Another area where I look forward to seeing more detail, but where polarisation might also be happening, is on broader health-related behaviours. The increased expenditure on sporting equipment and bicycles would suggest that some people tried to substitute going to the gym with home-based fitness and took to cycling as a way of getting around or exercising. On the other hand, the reduction in use of health services is likely to have caused poorer health for those who were already less fit.

While I await data for the first quarter of 2021, I might look next at how consumption has changed in the last 20+ years. Luckily, the ONS has published this data since 1997. One trend that COVID-19 has accelerated is the overall expenditure on health, no doubt partly driven by the ageing population: since 1997, the average age of the UK population has gone up from around 38 to more than 40. That may not sound like much, but, for example, the number of people aged 65 and over has increased by over 3 million, from 9 million (or 16%) in 1997 to 12 million (or 19%) in 2019.

As I have written elsewhere, the importance of health — and especially mental health — is likely to be a mega-trend that will fundamentally shape individuals’, businesses’ and governments’ behaviour in the decades to come. McKinsey Global Institute’s latest report on the link between economic prosperity and health is compelling on this point: even before the pandemic, poor health cost Europe about $2.7 trillion, or 15 percent of GDP a year, in lost economic opportunity, equivalent to about $5,000 per person.

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I help complex organisations make the right strategic decisions through innovative, insightful and incisive analysis and recommendations.

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Tera Allas

I help complex organisations make the right strategic decisions through innovative, insightful and incisive analysis and recommendations.