Consumer Credit Drops- Consumers (And Businesses) Look To Alternatives

13th April 2018.

The availability of consumer credit dropped “significantly” in the first quarter of 2018, according to a survey of credit conditions published on Thursday by the Bank of England.

The Bank of England found that the availability of unsecured consumer credit fell during the first three months of 2018. As household budgets diminish and fewer people have the money to spend, more are looking for plastic to solve all their financial problems. Unfortunately, with bank scandals and hikes in borrowing fees, bank loans are no longer the most attractive option. An important avenue for finance is therefore removed, and consumers have subsequently been placed in a further precarious position. Businesses within service and retail sectors have been witness to the tough consequences of stunted spending, and many high street retailers have struggled to maintain trade after experiencing continuously disappointing profits. The high streets have emptied, and as a result, so have the pockets of consumers and business owners alike.

Consumers are not the only ones who have lost trust in traditional financial institutions, with many business owners looking for alternative finance to fund expansion projects. The big banks have been replaced by a variety of platforms such as crowdfunding, peer-to-peer lending and even credit managers. While credit management is almost as old as banking, debt recovery or debt collection recovers money that is owed rather than lending money that belongs to someone else.

At the Credit Protection Association, our debt recovery services have afforded our members the opportunity to expand and grow their business and do so without damaging their credit history.

Consumer borrowing has helped to keep the UK economy growing following the June 2016 EU referendum, as households have borrowed or dipped into savings in order to maintain their living standards as prices have risen faster than incomes.

However, the increase in borrowing has also worried economists and regulators.

“The credit conditions survey for the first quarter of 2018 should go down pretty well at the Bank of England given its view that recent rapid growth in consumer credit has created a ‘pocket of risk’,” said Howard Archer, chief economic adviser to the EY ITEM Club.

Separate figures published on Thursday by the Office for National Statistics said that the proportion of cash saved by households had fallen to 0.9 percent in 2017, the lowest cash savings ratio since 2009.

Real household disposable incomes fell for two years in a row, after stripping out some income that households do not directly see such as changes in pension entitlements. The ONS said the fall in real incomes was “due mainly to a rise in prices”.

Since the financial crisis of 2008, consumer credit has become an important way for consumers to delay a financial threat. The skyrocketing interest rates that have accompanied credit, as well as bank loans, have damaged more credit scores than they have improved them. Experts may be concerned this drop in credit will damage the growth of the economy, but it could also pave the way for a more financial conscientious economy.

At the Credit Protection Association, our debt recovery and credit management services have not only provided our business members with some extra cash but also improved credit scores, ensured all suppliers are credit checked and have put them firmly back in the power seat.