Consumer credit forecast to grow at lowest rate for six years in 2020
Consumer credit is forecast to grow at its lowest rate in six years in 2020, despite a post-election pick-up in consumer confidence.
The EY Item Club predicted consumer credit growth of 3.2 per cent this year.
Although lending rose slightly at the end of 2019, signalling a post-election increase in demand, the annual forecast remains significantly down from 2017’s peak growth of 8.3 per cent, the research said.
The forecast for other forms of bank lending also remains subdued, despite an increase in optimism after the Conservative Party’s general election victory.
Mortgage approvals rose in December to the highest level since summer 2017, however, overall mortgage lending is only set to rise 4.1 per cent this year EY predicted – close to the average of the last five years.
Bank business lending is forecast to grow by 3.4 per cent which is “soft by historical standards,” EY said.
Consumers are set to benefit from a combination of low inflation and moderate pay growth this year, but there are some structural changes which will continue to hit the demand for credit.
Notably, the shrinking market for new cars has hit the demand for motor finance.
There has also been some tightening in credit conditions in the unsecured lending market.
EY’s UK financial services managing partner Omar Ali said “the growth in lending at the back end of 2019 has given cause for cautious optimism”.
But said: “It is still too early to tell whether these early green shoots will translate into a full and sustained economic recovery this year which will drive growth for financial services firms.
“It is very early days in the negotiations for the new UK-EU trading relationship, with expectations that any financial services deal will be hard fought.
“On top of that, all businesses are facing additional and significant challenges from wider global geopolitical uncertainty and the yet unknown economic impact of coronavirus.”