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.
According to our main scenario, borrowing is 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.
The annual PwC Credit Confidence survey reveals continued weakness in consumer confidence. While there has been a marginal increase in confidence about managing existing debts, there has been a marked deterioration in confidence over the future.
Confidence has been eroded further since the announcement of the Government’s Spending Review. While bad debt levels are beginning to abate, consumers’ lack of confidence in managing their debt should leave lenders on high alert.