Recent figures released by the Bank of England show that consumers are continuing the trend of spending less money and this suggests that fiscal confidence is still low. The report shows that credit-card borrowing is at its lowest rate since 2006.
Furthermore, this year has seen credit-card lending fall by £147m, the biggest drop in six years. Comparison sites such as Money Supermarket highlight the vast array of credit cards available, which suggests that the issue is with demand rather than supply.
These findings bring to light a general reluctance to spend and are strengthened by reports of low retail spending over the summer despite the Olympics.
The overall drop in borrowing shows that in addition to a fall in the use of credit cards, there has also been a reduction in other unsecured borrowing such as personal loans.
However, there has been some improvement in mortgage lending figures, which have increased during the third quarter of this year after reaching an eighteen-month low. Despite the increase in approvals by 3300 between June and July this year, it's anticipated that growth is likely to remain weak for some time to come as many consumers are still struggling to meet the lending criteria of mortgage providers.
The government has launched several schemes to help borrowers overcome some of the hurdles of
buying a home, but it may be some time before people begin to reap the benefits of these programmes.
Reasons for Borrowing Less
Consumer confidence is low for a number of reasons. There is still a high level of unemployment and polls suggest that most people are still worried about job security. With this in mind, consumers are adopting a more conservative approach to spending and are cutting back on luxuries such as holidays and eating out.
Additionally, despite lending criteria starting to relax a little over the last year, it's still more difficult to borrow money now than it was in 2008. Despite the huge number of differing credit card products available at sites such as Money Supermarket, consumers are very aware of this and the process itself can act as a deterrent to those who feel their circumstances may not match the strict criteria that many lenders still employ.
There's also been a significant rise in bad debt and defaults over the last four years. More people are struggling with their current financial commitments and missed credit payments have increased as a result. This has led to an overall reduction in the average credit score, meaning that a larger proportion of UK residents simply don't have the credit score required to gain access to any more credit.