UK: THE ECONOMY - CONSUMERS KEEP A CANNY HOLD ON CREDIT LEVELS.

UK: THE ECONOMY - CONSUMERS KEEP A CANNY HOLD ON CREDIT LEVELS. - A key feature of the recession has been the collapse in consumer borrowing. Consumer credit expanded through most of 1991, but by summer 1992 interest rate reductions had stalled and prior

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Last Updated: 31 Aug 2010

A key feature of the recession has been the collapse in consumer borrowing. Consumer credit expanded through most of 1991, but by summer 1992 interest rate reductions had stalled and prior to the UK's exit from the exchange rate mechanism consumers were again repaying more debt than they were taking out. Cuts in interest rates, however, following the exit from ERM, led to a rapid turnaround. Since the trough in November 1992, consumer credit has expanded by 5.5%. This recovery has been narrowly based: lending by finance houses and other specialists has risen by 7.4% in the last year while that by banks and building societies has risen by only 1.3% and 0.8% respectively. The strength of finance lending seems to be related to the rise in car registrations. New credit advanced by finance houses for vehicle purchases has grown by more than 40% in the last year, considerably faster than lending for store goods or home improvements. However forthcoming tax increases and high debt levels hanging over from the 1980s suggest that households are unlikely to allow their gearing to rise, says Schroder Economics. The recent rise in borrowing in part results from an unwinding of pent-up demand. Both factors mean that the growth of borrowing is likely to slow down.

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