DATAMONITOR VIEW 1
CATALYST 1
SUMMARY 1
ANALYSIS 2
The consumer credit market has deteriorated over 2008 2
The consumer credit market performed poorly in 2008, with lending considerably weakened although balances outstanding have begun to fall 2
The credit crunch and recession continue to impede the functioning of the consumer credit market 6
Base rate cuts during 2008 have failed to help Britain climb out of recession 6
Lenders have become more conservative in order to cope with the economic downturn 6
Despite attempts to cut their spending, many consumers need to keep borrowing 7
Most credit products saw modest falls in gross lending during 2008 7
Consumers continue to fund short-term borrowing needs with their credit cards 10
Unsecured personal loans: declined dramatically over 2008 10
Gross advances on overdrafts have stayed relatively stable over 2008 11
The last quarter of 2008 saw a sharp decline in point of sale retail finance 12
Point of sale motor finance fell dramatically in the second half of 2008 12
Personal loans strengthened their market share over the past five years 12
Economic conditions will continue to deteriorate in 2009 before improving in 2010 14
Datamonitor's forecasting model explained 14
Difficult times will continue for the UK economy, with negative GDP growth and a falling housing market 14
Falling inflation allowed the Bank of England to cut its base rate but there has been little economic impact 14
Retail sales lifted somewhat in Q4 2008 but car sales figures are bleak 15
House prices continue to fall with no end in site to the price correction 15
2009 will not herald respite from economic and financial difficulties, even under Datamonitor's neutral scenario 16
Datamonitor also analyzes two different scenarios - one more pessimistic, the other more optimistic 17
Measures are being taken by the government to aid the consumer credit market but any long-term change requires changes in behavior on the part of the industry and consumers 19
A lending panel was created late in 2008 to monitor loans to households and businesses 19
But the Lending Panel also faces an almost impossible challenge 20
Ultimately sustainable consumer lending requires a responsible industry and more cautious consumers 20
Under the Consumer Credit Act, fixed-sum credit agreements will require annual statements 20
APPENDIX 21
Supplementary data 21
Definitions 22
Bank of England base rate 22
Balances outstanding 22
CAGR 22
CCJ 22
Consumer credit 22
Gross advances 22
OFT 23
Overdraft 23
Methodology 23
Forecasting methodology 23
Choice of economic variables 23
Model outputs 23
Bespoke scenario based forecasting 25
Further reading 25
Ask the analyst 25
Datamonitor consulting 25
Disclaimer 25
List of Tables
Table 1: Quarterly total consumer credit gross advances and balances outstanding in the UK, Q4 2006-Q4 2008 3
Table 2: Retail savings and investments in the UK, 2004-2008, GBP million 5
Table 3: Net inflows of retail savings and investments, 2004-Q3 2008 6
Table 4: UK consumer credit gross advances by product, Q4 2006-Q4 2008 (£m) 9
Table 5: Market share of consumer credit balances outstanding by product line, 2004-2008 13
Table 6: Datamonitor's updated macroeconomic variables for 2008-13: neutral scenario 16
Table 7: Datamonitor's updated neutral consumer credit forecast by product line, 2008-13 (£bn) 17
Table 8: Datamonitor's updated pessimistic consumer credit forecast by product line, 2008-13 (£bn) 18
Table 9: Datamonitor's updated optimistic consumer credit forecast by product line, 2008-13 (£bn) 19
Table 10: UK consumer credit balances outstanding by product, Q4 2006-Q4 2008 (£m) 21
Table 11: Datamonitor's updated macroeconomic variables for 2008-13: pessimistic scenario 21
Table 12: Datamonitor's updated macroeconomic variables for 2008-13: optimistic scenario 22
List of Figures
Figure 1: Total consumer gross lending has slumped over 2008 and the rate of growth of balances outstanding started to decline in Q4 2008 3
Figure 2: Savings and investments in the UK fell in 2008 4
Figure 3: UK investors have pruned back their holdings in bonds, shares and mutual funds 5
Figure 4: There have been declines for most products although overdrafts saw relatively flat year-on-year percentage growth throughout 2008 8
Figure 5: Unsecured personal loans have continued to increase their market share of balances over the past five years 13