Consumer debt rises while businesses save

  • Soaring levels of consumer debt are evidently causing the Bank of England, the Government and others in authority some sleepless nights. According to a recent report in The Guardian, the number of people taking out second mortgages rose by 22% in March this year, reaching levels that have not been seen since 2008. Credit card borrowing went up by £1.9bn during the same month to reach the highest levels for 11 years, apparently due to consumers being unable to resist the discounted interest rate and ‘interest free period’ offers from issuers. And, in a relatively new twist on the same theme, attractive-sounding personal lease deals now represent 90% of booming new car sales, thereby potentially building up a powder keg of debt secured against rapidly depreciating assets.

    And yet all the borrowing isn't translating into economic growth. Figures out today (25 March) from the Office of National Statistics downgrade estimates of GDP growth in the first quarter from 0.3% to 0.2% - a rise in inflation and the fall in the value of the pound since the Referendum are held to blame.

    The main worry is that, if unemployment, inflation and interest rates all go up in unison, disposable incomes will shrink and default rates on credit cards and loans will rise too. Many of the pre-2008 banking crash symptoms are reappearing and – so the argument runs - the bubble is about to burst all over again. The question is: are we really spiralling out of control?

    You don’t need to be an economist to figure out that our economy – the envy of the Western world – is being fuelled largely by debt. Debt is normally a sign of confidence, which is a good thing if it is well founded. But the problem is, if you try and control it by allowing interest rates to rise or real incomes to fall, the economy will inevitably slow down and ruin the brave new post-EU epoch. That’s the thing about debt – it has to be paid back sometime, even by Governments!

    Interesting therefore to note that in contrast, even with burgeoning consumer confidence and all the urgings to borrow for growth, the UK’s SMEs are still preferring to save for a rainy day. The BBA revealed in March that applications for bank finance were down 9% last year over 2015 and that smaller businesses had amassed a total of £174.7bn in either current or deposit accounts over the same period, a rise of 7%.

    In the alternative finance sector, despite continued good growth, it is no secret that P2P lenders are seeing more willing investors than they are borrowers, which is hardly surprising if the former can tap into returns of 8-9% compared with 1% or less from a bank deposit account. And if Innovative Finance ISAs really start to take off after the recent spate of authorisations from the FCA – effectively transforming gross returns into net returns – the disparity could become even wider. The money is available and accessible like never before – businesses just have to feel confident enough to take it.

Related articles

  • Read More

    Bank Referral Scheme - is 3% success, success?

    We suspected that the Bank Referral Scheme was going to be a slow starter when, five months ago, The Marketing Eye asked the Treasury’s Press Office how it was getting on. Despite the fact that no...

  • Read More

    Peer-to-peer lenders should not fear APRs

    Following the Competition and Markets Authority's (CMA) announcement that the new pricing rules on business loans will not apply to peer-to-peer lenders, some are heaving a hefty sigh of relief,...

  • Read More

    Peer-to-Peer lending passes £10 billion mark

    Peer-to-peer lending has reached a significant milestone since Zopa launched the world’s first P2P platform in 2005. Over £10 billion has been cumulatively lent across 23 UK P2P platforms....

  • Read More

    Peer to Peer featured in Queen's birthday honours

    Good to hear that the pre-eminent pioneers of P2P lending in the UK are receiving formal recognition for their outstanding achievements. Described an a ‘Peer to Peer and Financial Inclusion...

  • Read More

    New Fintech Collaboration: Xero + Liberis

    Liberis, the card based finance provider, has announced an integration with Xero, the UK's leading online accounting software, to improve small businesses’ access to capital and credit....

  • Read More

    Liberis and Sage launch Sage Pay Business Finance

    Sage Pay has teamed up with alternative business finance provider, Liberis,to give Sage customers access to flexible financing for the first time....

  • Read More

    ArchOver receives FCA authorization

    ArchOver, one of The Marketing Eye’s longest standing clients in the alternative finance sector, has been granted full authorisation by the Financial Conduct Authority (FCA). The news represents a...

  • Read More

    Australian Budget sets scene for FinTech growth

    The latest Budget statement from ‘down under’, on May 9, reaffirmed the Australian Government’s intention to turn the continent into a global fintech centre....

  • Read More

    FinTech as a force for good

    Kids, they say, grow up quickly and nowhere is this more true than in FinTech. Barely five years ago, the phrase wasn’t even invented. Now it is the collective noun for billion dollar enterprises,...

  • Read More

    What is a bank?

    One of the recurring themes at this year's AltFi Europe event, organised by the excellent AltFi team, was a quest for the definition of a bank, or more particularly a bank of the future. Is it any...

Take the first step

To find out more about how we can help you grow faster, please get in touch. We'd like to hear from you.  Or try our instant marketing healthcheck, it's free!

Quick Contact

Quick contact


Contact us

T 01825 765617


Our offices

Full details of our offices in London and Uckfield more

Request a call