A Mixed Bag of Concerns
The reported recovery in real wage growth has failed to promote optimism among households. The consumer confidence barometer by GfK, (Times 27th April) – the bellwether indicator which is tracked by the Bank of England and others – fell from minus 7 in March to minus 9 this month. It has now been negative for 28 months in a row. GfK’s survey revealed a steep decline in consumer confidence towards financial situations for the past 12 months, and the year ahead.
The above indicative figures arrived shortly after another bleak survey for retailers. The CBI distributive trades survey of 100 retailers showed sales volumes recovered weakly from the atrocious weather in March. The balance rose from minus 5 to minus 2, but fell a long way short of economists’ forecasts for plus 5.
To amplify the potential problems ahead, Britain’s growth rate weakened to 0.1% in the first three months of 2018, the lowest quarterly reading in more than five years, according to preliminary figures published today by the Office of National Statistics (ONS). The ONS stated that aforesaid weather in March had some impact on construction and some areas of retail, but the overall effect on GDP was limited. Rob Kent-Smith (ONS) stated: “Our initial estimate shows the UK economy growing at its slowest pace in more than 5 years, with weaker manufacturing growth, subdued consumer-facing industries and construction output falling significantly.”
Figures published by UK Finance on 25th April showed a 10% drop in mortgage approvals in March compared to the previous year, citing declining consumer confidence. In London market the hotbed of property price increases is stalling, and asking prices not being achieved. There is still slight growth in the provinces but there are early signs it is stalling as well.
The Bank of England has raised concerns over the risks posed by equity release mortgage books after its analysis found borrowers aged between 55 and 64 now make up 15% of the market, double the level in 2015. Householders who have a nest egg in their property are accessing their equity, sometimes unwisely with little regard to the future. This is happening as homes have become less affordable in the past year as house prices have risen faster than wages. ONS figures released on 25th April state that full-time workers spent around 7.8 times their annual salary on buying a home in England & Wales in 2017, a significant increase of 2.4% since 2016.
The economy is still extremely bumpy and there will be peaks and troughs over the coming 12 months. However the underlying trend is difficult times ahead for consumers, and with a potential slow down in house prices, equity values falling, and banks being more prudent and raising their credit granting cut-offs, the ‘Just About Managing’ (JAMs) consumers will find loans difficult to get. Politically this could be a ticking bomb as the JAMs are not all so-called ‘vulnerable consumers’, they are spread throughout all socio-economic groups.
Stricter regulation is starting to choke credit granting, at the same time as ‘smoothing finance’ is required. The CCTA continues to champion the cause for all creditworthy consumers to have access to affordable and responsible credit. It also champions the cause for a diverse delivery mechanism across large and small companies, to ensure that every loan is judged on merit, not by rote.