Credit market regaining strength but limits still sliding

The UK credit card market is showing signs of recovery, with new accounts up by 16% month-on-month in November, and by 162% since the May 2020 low, according to data from the latest Equifax Market Pulse series.

Credit limits, an indicator of lenders’ risk appetite and applicants’ financial health, are however still sliding, down 10% in November and 26% since March.

Meanwhile, the personal loan market is cautiously trending upwards, with new prime and non-prime accounts continuing to improve, standing at 57% and 68% of January 2020 volumes respectively, after significant downturns in Q2.

Paul Heywood, Chief Data & Analytics Officer at Equifax UK, said: “It’s encouraging to see signs of revival in the credit market, but with the UK plunging back into lockdown there’s still a challenging road ahead and lenders and borrowers will remain cautious. The rollout of a nationwide COVID-19 vaccine programme should stimulate some bounce-back in GDP and improve consumer confidence when lockdown restrictions finally ease. On the downside government COVID-19 support schemes will wind down and the UK must adapt to a new post-Brexit business environment. In the meantime, cases of financial difficulty will continue to increase, meaning an in-depth understanding of consumers’ financial health is going to be more important than ever to ensure lenders can make informed and appropriate credit decisions.”

Andrew Goodwin, Chief UK Economist at Oxford Economics, who spoke at the latest Equifax Market Pulse webinar, said: “The UK has been among the hardest hit of all Western economies by COVID-19 and is likely to have suffered its largest annual fall in GDP for 300 years in 2020. However, better times are ahead with the vaccine rollout likely to allow restrictions to be eased from Q2. This will trigger a strong consumer-led recovery and we expect to see GDP growth of 4.5% in 2021 as a whole. Nonetheless, the government has a rocky path to negotiate. The labour market is sitting on a knife-edge and unemployment is expected to exceed 6% this year. Withdrawing fiscal support while keeping the recovery on track will be a delicate balancing act.”