It looks like UK consumer credit growth may be slowing down, falling to 9.8% from 10%. Factors that may be contributing to this trend include onerous regulations placed on banks and declining confidence in the UK due to Brexit. The Bank of England has taken action to ensure that banks will be well positioned in the event of a downturn. The BoE is concerned that the rise in consumer credit has not been matched by a commensurate rise in capital at banks and is now forcing lenders to hold an extra 10 billion pounds in capital to cover potential losses. Two P2P lenders have also taken actions recently to prepare for higher losses. Zopa warned their investors to expect higher than forecasted losses and Wellesley last year raised £2.5 million to absorb impairment losses. Consumer spending growth has slowed as well, rising 0.1% in 2Q17, the slowest rate since late 2014. This has likely been due to rising inflation, weaker wage growth and tighter lending standards.
However, some maintain a positive view and believe that there will be modest acceleration in growth during the second half of 2017 and into 2018. Paul Hollingsworth, UK economist at Capital Economics, expects inflation to fall and wages to rise, “the foundations for spending growth next year should be stronger, so concerns about consumer credit are likely to diminish, rather than build further.”
Another sign that consumer credit may remain strong is the fact that Goldman Sachs is planning to focus on the space and expand its UK retail operations by mid 2018. Additionally, earlier this month, Goldman invested £100m in Neyber, a Fintech start-up consumer lender.
So, what do we make of all this? Consumer spending growth and consumer credit growth are both decelerating, and companies are preparing to deal with the consequences. But there are still many who think the situation will improve in the not too distant future and there is some smart money that is preparing for this possibility.
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