Financial scar tissue in cities drives unequal pandemic recovery, shows latest Financial Vulnerability Index

As UK households are hit by rising prices, the latest update to the UK Financial Vulnerability Index (FVI), a joint project of Lowell and the Urban Institute, the most up-to-date index on UK household financial health based on anonymized data from over 9.5m of Lowell’s UK customer accounts provides unique insights. It shows that there has been an unequal recovery from the pandemic with many cities seeing only a limited improvement since Q1 2020.

This financial scarring, leaving many cities still with high financial vulnerability, will hamper economic recovery and the Government’s Levelling Up agenda as well as amplifying the cost of living crisis.

The Financial Vulnerability Index, a joint project between Lowell, one of the largest credit management companies in Europe, and the Urban Institute, a leading U.S.-based research organization, uses unique Lowell data and publicly available data to measure household financial vulnerability across the UK.

John Pears, UK CEO of Lowell, said: “Right now, everyone’s talking about the increased cost of living, but the impact won’t be the same everywhere. There are lots of communities that still aren’t back to how they were before the pandemic and they are being hit again. With rising energy and food prices, we hope that these areas get the support they need, or the Government run the risk of levelling down in some of our biggest cities.”

Signe-Mary McKernan, Vice President for Labor, Human Services, and Population at the Urban Institute said: “While the United Kingdom overall experienced improvement in financial vulnerability, gaps remained in several regions, and high financial vulnerability persisted in places like Liverpool, Middlesbrough, and Birmingham. As policymakers look to guide recovery, supporting the financial health of residents can help families cope with inflation and stabilize communities.”

Scar Tissue in Cities Drives Unequal Recovery – The Spring 2022 update to the Financial Vulnerability Index reveals that cities like Birmingham, Liverpool and Manchester are still grappling with the effects of the pandemic despite the recovery seen elsewhere. Many constituencies in these cities saw high levels of vulnerability before the pandemic, something that was exacerbated by successive lockdowns. These areas have become ‘scar tissue’, immune to the general upswing in the economy seen as the pandemic ebbed. This is not just a financial issue as high levels of financial vulnerability are strongly correlated with a reduced life expectancy.

a) Trapped in vulnerability – Birmingham, Manchester, Liverpool, Leicester and Newcastle are the biggest cities with this scarring effect. All of these cities have only seen an improvement in the -0.5 – 2.5 range in their financial vulnerability since the peak of the pandemic. Constituencies in Birmingham for example, like Hodge Hill, Lady Wood and Erdington have seen virtually no improvement since Q1 2021.

b) Demos Report: Cities should be on levelling up agenda – A new report from Demos, produced in partnership with Lowell, identified a number of areas subject to the ‘double whammy’ of high financial vulnerability and limited access to affordable credit. Many of these areas are in the towns identified as targets for levelling up, but a significant proportion are found in cities outside of London.

c) Inflation and Financial Vulnerability Converging –The Consumer Price Index inclusive of Housing Costs and FVI converged in Q3 2021 as the UK’s recovery from the pandemic continued. This sets the stage for rising inflation to drive up financial vulnerability in struggling areas.