Household confidence is growing as consumer credit climbs higher and higher. UK consumer lending is approaching its highest level since 2010 as more households increase their spending due to an improved job market and strong wage growth.
According to the EY Item Club, consumer lending could increase by 3.1% this year to a total of £164 billion. Lending among consumers increased 0.8% in 2013 as a better job market encouraged many households that financial stability was returning. The consumer credit write-off rate is predicted to drop to just 2 per cent this year.
ITEM Club senior economic advisor Andrew Goodwin commented on the growth in consumer credit: “Last year we saw growth in credit card lending and demand for car finance recovering strongly but other forms of unsecured credit either fell or remained stagnant.”
“This year we expect growth across the board – as well as a swell in consumer demand for credit cards, we expect stronger demand for big-ticket purchases, driving retail finance and personal loans, which will be good news for banks.”
Several factors have contributed to the improved household lending, including large drops in the number of unemployed. Official figures released by the government last month reveal that the national jobless rate is just 7.1%, with economic growth up to 1.9% in the last twelve months.
Goodwin believes that 2014 will be a decisive year for consumers, with economic improvements leading to a “return to some form of normalcy” for UK households and individuals. The rise in consumer borrowing last year was the first of its type since 2008.
It’s not just consumer credit card borrowing that’s on the rise. Mortgage lending is likely to continue to rise as demand for property increases across the country. The mortgage write-off rate has dropped to 0.04 per cent in the last year, signalling a strong property market that could continue to drive economic growth.
