Credit, Collections & Insolvency News
Consumer credit is forecasted to grow by 4.8% this year, increasing to 5.3% in 2024 according to EY Item Club predictions.
Falling real incomes may to some extent weaken demand for big ticket items often funded by borrowing, a prospective recovery in the economy in the second half of this year is likely to boost consumers’ confidence in using credit.
Growth of 4.8% (net) is forecast for unsecured credit this year (equating to growth of £9.9bn), a little above the 4.4% net growth recorded in 2022. This represents a rebound from the pandemic period over 2020 and 2021, when consumer credit fell by over 10%.
Demand for unsecured credit is currently affected by competing forces. On the one hand, consumer confidence is currently very low, meaning people are cautious to take on debt, and real incomes are falling, which is affecting demand for big ticket items that are often funded by borrowing. But, on the other hand, debt repaid during the pandemic and a prospective recovery in the economy in the second half of this year may increase consumer confidence around using credit again.
The EY Item Club predicts growth of 5.3% (£12bn) in 2024 before dropping back slightly to 4.1% in 2025 (£9bn).
Anna Anthony, UK Financial Services Managing Partner at EY, said “The series of economic shocks in recent years and the current cost of living pressures are having a significant impact on both households and businesses. Those most affected are the vulnerable in society and small businesses which may have limited financial cushions of support to fall back on. Stretched affordability will affect loan demand across all fronts and banks should be preparing for low and, in some cases, negative lending growth rates. Banks also face the prospect of the number of loan defaults rising amid the economic downturn. However, default rates are expected to be much lower than recorded after the financial crisis, and given the sector’s much higher relative level of capitalisation, banks are in a strong position to help consumers and businesses through this difficult period.”
“While the economic environment is likely to be tough over the next few months, economic conditions are expected to improve over the course of 2023. This is likely to have a positive impact on consumer and business confidence – and lending growth – as we head into 2024.”
Menawhile mortgage demand to fall to lowest level since 2011 as cost of living pressures felt. After net mortgage lending growth of 4.1% in 2022, the EY ITEM Club predicts growth will fall significantly this year to just 0.4% (equating to net lending growth of £6.5bn). This would be the weakest growth since just after the financial crisis. This forecast is against a backdrop of real incomes continuing to fall while house prices remain high.
With inflation set to fall back throughout 2023 and the Bank of England predicted to cut interest rates around the end of the year heading into 2024, affordability should start to improve and boost the outlook for the housing market. The EY ITEM Club forecasts net mortgage lending to rise 1.4% in 2024 (equating to a £23bn increase) and 2.4% (a £40bn increase) in 2025.
Recession and higher borrowing costs are likely to push up write-offs on all forms of lending in 2023. However, the EY ITEM Club expects levels to be lower than the peaks recorded in the financial crisis.
