The latest on consumer finance in the UK According to the latest figures by the FLA (Finance & Leasing Association), consumer finance growth is up by 3 percent in September 2017 compared to the same period last year. Q3 2017 has seen a new business growth of 6% compared to Q3 2016.In September 2017, new business generated by credit cards and personal loans grew by 3% compared to September 2016. Online credit and retail store new business increased by 6% over the same period. Second charge mortgage value (new business) also grew at a similar pace in September 2017. However, new business volumes dropped by 2 percent over the same period.
According to Geraldine Kilkelly, Chief Economist and Head of Research at the FLA, new consumer credit is expected to increase by 3.3% in 2017, a significant drop from the 6.3% growth in 2016. This forecast comes in the wake of subdued consumer confidence and the slowest business growth since April. Consumer confidenceAccording to the most recent Lloyds Bank spending power report, consumer confidence is at the lowest level in 2.5 years (since April 2015). Consumer confidence is a measure of how consumers feel about their current as well as the future state of their finances and economic conditions as a whole.
In the IPSOS MORI monthly survey involving 2000+ UK bank account holders, 61% felt positive about their finances in October, a 3pp drop from 64% the previous month. Consumer confidence is a vital consumer finance metric. The measure is at its lowest level in 30 months. Statistics indicate that there is a huge gap between different age groups. Majority (78%) of individuals over 65 years old are positive about their financial situation compared to 60% of individuals between ages 18 and 24 years and 61% of individuals aged between ages 25 and 34 years. The latest statistics also show that women are less positive than men in regards to consumer confidence, i.e., 58% against 64%. Although we are approaching the festive season which is characterised by overly positive consumer finance metrics (increased borrowing and spending), 38% of individuals in the Ipsos MORI survey are worried about personal spending during Christmas. 13% of individuals in the survey are planning to cut back on typical spending to cater for festive spending.
The number of UK households with comfortable financial situations dropped in October 2017 by two percentage points to 60%. The situation is worse among households with children aged 18 and below. Lloyds Bank customer account data analysis shows that people are spending more on essentials. The latest statistics show a 2% growth in essential consumer spending in October. This represents a 17-month consecutive growth in essential spending with food accounting for approximately 40% of all essential spending.
Fuel spending is also significant according to the Lloyds Bank data analysis with an increase of approximately 5% which represents a 14-month continuous growth. Electricity and gas spending increased by 2.5% from 1% last month. Energy spending has been rising for the 3rd consecutive month after enjoying a continuous decline for three years. According to Robin Bulloch, Lloyds Bank Managing Director, although most people are positive about their finances, there was a significant drop in overall consumer confidence in September 2017. Bulloch attributes the drop to factors like inflation. Since inflation is at a 5-year high, Bulloch states that consumers, more so millennials, have begun to feel the pinch more than everyone else. He doesn’t find it surprising that the UK government reached out more to millennials in this week’s budget. As inflation rises and wages stagnate, UK consumers are being forced to rely on loans. This explains why there are more and more people taking out payday loans, credit cards and other forms of short term loans today. Consumer finance growth isn’t necessarily a good thing if consumer confidence remains low especially among the population that is supposed to drive the economy forward.
Although the budget has some interesting perks that will see minimum wage workers earn more and households save more in taxes, critics argue that the budget perks don’t mean much when you consider inflation. As the cost of essential increases, it is advisable to spend wisely during this festive season. You should stick to affordable goods during this season to avoid starting 2018 in debt. Avoid loans at all cost except for emergencies. Managing your finances is critical during this period since loans are easily accessible now more than ever before and we are approaching a time of the year characterized by overspending.