UK lenders are planning the biggest squeeze on consumer credit since late 2008, when the economy was in the depths of recession, according to the latest Bank of England survey.
The Bank?s quarterly survey to show the net balance of lenders? expectations for the availability of unsecured lending to households over the next three months found that the net balance has fallen from -16.2 to -28.6
This fall represents the steepest contraction since the fourth quarter of 2008, when the economy was in the depths of the global financial crisis.
Lenders made it more difficult for consumers to take out new credit cards and unsecured loans such as overdrafts in the third quarter, tightening lending criteria and approving fewer applications.
The Bank of England stated: ‘Some lenders reported that they had slightly tightened their credit criteria for some products. Motivations for this included concerns about customer indebtedness and the squeeze in real incomes.’
Despite insisting that there is no overall debt bubble in the UK economy, the Bank of England has been expressing concern about the growth of consumer debt, which has been growing at around ten per cent per year.
The Bank of England has also indicated that a rise in interest rates is likely soon, as long as the economy and inflation continue to grow.
However, in a recent survey by Reuters most economists consider that it would be a mistake to raise interest rates during the present uncertain times caused by the imminent Brexit.
Joanna Davies, economist at Fathom Consulting, said: ‘We’re quite concerned about the consumer squeeze.’
She indicated that wages were falling in real terms when adjusted for inflation, and household savings are at a historical low.
She continued: ‘If you add tightening credit conditions onto that, it doesn’t bode well.’
The Financial Conduct Authority (FCA), which regulates consumer credit firms, is looking at whether changes are needed as thousands of people struggle with debt.
There has been calls for the FCA to cap higher interest rates. However, David Geale, director of policy at the FCA, is unconvinced that is the answer.
He said in a speech at the Westminster Business Forum: ‘I don’t think there is a one-size-fits-all solution.’ Citing that consumer credit, including unarranged overdrafts, were a lifeline for some people.
He continued: ‘Price caps are something that shouldn’t be used in haste … There is a combination of factors that we need to consider, and not just a price cap.’