Consumer Borrowing Slumps- Good News, or Bad?
2nd April 2018.
City analysts have warned that the economy is facing a “credit slump” after the amount that consumers borrowed on credit cards, overdrafts and car loans collapsed in March.
Britain has had historically high levels of credit card debt, bank loans, and overdrafts. Now, as a result, consumers of the present are being forced to embrace caution and conscientiousness. According to new data from the Bank of England, high street lenders provided £300 million of credit to consumers in March, down from £1.7 billion the previous month. Confidence has been lost on both sides, with recent warnings from the Bank of England leaving banks unwilling to lend to squeezed households, inspiring consumers to consider the multitude of alternative financing options.
This borrowing slump has had a knock-on effect on businesses, with many owners struggling to obtain a bank loan to support expansion opportunities. The public’s trust in financial institutions has been hit by a catalogue of banking scandals in the last year, and now the news that RBS will be closing down branches has angered its customers further. With this negative institutional landscape, as well as the growing presence of alternative finance platforms, merely borrowing cash from a high street lender is no longer such an attractive option.
Nevertheless, consumer confidence is declining at the same rate as spending, and businesses need help in gauging attention. Britain needs to retain its competitive edge, particularly within the Capital, so UK businesses need to embrace new methods to steal focus. While alternative finance providers are in abundance, business owners need an option that will not squeeze their finances -or their chances- further. Here at the Credit Protection Association, our debt recovery services free up cash flow, while our credit management products take steps to protect it.
Consumer credit, which includes credit card lending, overdrafts and car finance, is considered a key component of growth in the economy. Credit leads to an increase in spending, which in turn increases income levels and so leads to a higher rate of GDP.
Fabrice Montagne, chief UK economist at the bank, said: “Consumer credit collapsed in March. The storms are likely to have driven part of the sudden collapse. However, recent months have also signalled a steady loss of underlying momentum.”
The figures suggest that years of rising growth in unsecured lending to households has come to a sharp halt after lenders reacted to warnings from the Bank of England that the debt level was a danger to financial stability.
Paul Hollingsworth, the senior UK economist at Capital Economics, said: “While policymakers have been somewhat worried about the rates of unsecured credit growth, from a financial stability perspective a very sharp slowdown could raise concerns about growth in consumer spending.”
Experts have always shown concern when credit has declined, believing its link to spending could hurt the economy. However, the recent lack of available credit does not spell the end to prosperity for consumers and businesses alike. After all, there are options that offer financial support but don’t also offer exploitive interest rates. Borrowing may be slumped, but spending and innovation do not have to follow.
At the Credit Protection Association, our debt recovery services chase down unpaid invoices and residual debt, providing our members with the extra cash needed to explore new opportunities. Many of our business members have gone on to invest in new technology, new offices or new staff. If consumer spending and confidence is to be inspired, businesses need to earn it through eye-catching websites, new services and new ideas.
While the borrowing slump may affect consumer behaviour in the short-term, it could also breed more conscientious consumers and business owners, who will manage their credit, rather than slowly chip it away.
The Credit Protection Association is a credit management company established in 1914. If you supply goods or services on credit then we can help you!
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