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Following the best part of a decade of uninterrupted growth, the UK consumer credit market is no longer a growth industry. Outstanding unsecured borrowing fell by more than £500 per household over the last year.
Borrowing was set to contract by a further 2-3% or £200 per household in 2011 as consumers continue to repay debt and the supply of credit remains constrained. Given the historical significance of debt fuelled consumption to the UK economy, this prolonged contraction may impede retail sales and could be a drag on economic growth.
Total unsecured gross lending will rise from £179.5 billion in 2011 to £229.9 billion in 2016, equating to a compound annual growth rate of 4.6%. Unsecured personal loans are expected to perform best of all, doubling from £27.1 billion in 2011 to £56.1 billion in 2016. New car finance is also set for growth, with car manufacturers using this to stimulate demand.
While credit card lending is falling, gross lending in the other segments of consumer credit reports growth in 2012 as consumers, although keen to reduce debts, struggle to support their living standards in a context of stagnant wages, rising unemployment and rising cost of living.
For some consumers, they have to rely on credit facilities to pay for everyday living. As a result, other personal lending saw further growth in 2012, up by over 4%. Personal loans represent 87% of other personal lending, followed by overdrafts, while payday loans are the fastest growing category.
The major UK lenders are Banco Santander, Barclays, HSBC, Lloyds Banking Group, Nationwide and Royal Bank of Scotland, and together they accounted for around 70% of the stock of lending to businesses, 45% of the stock of consumer credit, and 75% of the stock of mortgage lending at the end of December 2011, according to the Bank of England.
The rest of the market is highly fragmented, due to the presence of other financial service providers such as insurance companies, supermarket chains and large retailers which expanded into consumer credit, such as Tesco Personal Finance and Marks & Spencer Financial Services.
Consumers are likely to keep their use of consumer credit to a minimum through to 2016. They do not want to take on new debt and will instead try to pay off their outstanding debts as much as possible. However, this could be challenging as consumers are facing rising unemployment and inflation, while wages remain stagnant.
For more information on the UK consumer credit market, see the latest research: UK Consumer Credit Market
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