After months of stunted retail sales, low profits and even persistent insolvencies, consumers could be forced to act even thriftier. New reports have suggested that consumer debt could be on the rise, with credit cards in particular driving consumers into financial distress. With wage growth fading and Brexit uncertainty lingering, consumer confidence has stayed stubbornly low. The indifference from consumers has negatively impacted consumer-based sectors, such as retail and the service sector. British high streets have slowly emptied, with company insolvencies growing by the day.
According to a new survey conducted by the Bank of England, lenders expect people to step up their demand for unsecured credit over the next three months. The Bank’s decision to keep interest rates low has made it easier for consumers to borrow from banks, and as a result, has aggravated already vulnerable financial situations. Wage packets have shrunken and household debts have subsequently inflated, leaving consumers seeking reckless resolutions to financial concerns.
Despite popular opinion, high levels of consumer debt do not have to prove fatal, and businesses can boost financial strength themselves. At the Credit Protection Association, our services all work to reduce residual debt that might impact our Members’ business negatively. Unpaid invoices are chased down and late payers eradicated, leaving our Members financially stable and confident.
A net balance of 12.3 per cent of lenders expect demand for consumer credit to rise in the coming quarter. This is the highest since the first quarter of 2016, before the Brexit vote.
The credit conditions survey found that there had been a significant increase in credit card applications approved by lenders between April and June, showing the sharpest rise since March 2007.
The fact that consumers are willing to load up on more credit at a time of sluggish wage growth suggests that spending growth is holding up in the face of higher inflation, but the results of the survey are likely to be closely analysed by regulators at the Bank of England who have kept a wary eye on consumer credit since 2015.
The value of buy-to-let lending has fallen by more than a fifth over the past year, as landlords continue to be hit by taxes on second homes, tougher lending rules and the removal of tax relief on mortgage costs (Tom Knowles writes).