The Bank of England announced recently that consumer credit growth had slowed. In November last year, the annual growth rate of consumer credit slowed to 9.1%, its lowest rate since December 2015 and down from its peak in November 2016 of 10.9%. Net unsecured consumer borrowing was at £1.4 billion in November 2017, down from £1.91 billion in November of the previous year.
In September 2017, The Bank of England warned that UK lenders were “underestimating potential losses,” with regards to unsecured loans to their customers. Now it appears that lenders have begun to rein in their lending by stemming the flow of loans available for unsecured credit.
According to the headline in the Independent,
“UK lenders expect ‘significant’ squeeze on unsecured debt to households in 2018, finds survey”
“The Bank of England’s latest Credit Conditions Survey also shows lenders have been reducing unsecured credit availability for four consecutive quarters.”
Howard Archer, Chief Economic Advisor to the ‘EY Item Club‘ has said that it would appear that lenders were “reining in” the amount of unsecured credit available and were “tightening their lending standards.”
He went on to say, “Indeed, the last Bank of England’s credit condition survey indicated that lenders cut the amount of unsecured credit available in the third quarter of 2017 at the fastest rate since 2009, with a further significant reduction seen in the fourth quarter. Meanwhile, banks’ credit scoring criteria for granting both credit card and other unsecured loans were reported to have tightened in the third quarter.” He also said, “heightened uncertainties over the outlook” could be encouraging consumers to be more cautious. “it may be that heightened uncertainties over the outlook and increased concerns over personal finances are encouraging some consumers to be more cautious in their borrowing. However, the persistent squeeze on consumer purchasing power is likely continuing to fuel the need for some consumers to borrow.”
The Bank of England will be “pleased” with the credit slowdown and would be “looking for a continuation of this trend,” Archer added.
Some, however, are a little more cautious about the Bank of England’s recent announcement.
The Head of policy of one of the UK’s leading debt charities said,
“While the rate of growth may have slowed, the outstanding amount of borrowing taken on by households continues to grow at a rapid pace. We know that millions of people are already using credit just to get by; while wages falling behind inflation risks leaving more families vulnerable to debt. Helping the millions of households living on a financial edge must be a priority for public policy. With the pile of outstanding credit card debt still growing, the Financial Conduct Authority (FCA) must ensure that its credit affordability rules are robust enough to ensure that what is designed to be a short-term lending product, does not trap people in long-term, expensive and potentially harmful cycles of debt.”