Consumer credit set to rise by 3.1%

A demand for credit card borrowing is set to boost consumer credit

10 February 2014

Consumer credit is expected to swell to £164 billion this year as demand for credit card borrowing and retail finance grows, according to a report today.

The EY Item Club forecast for financial services predicts it will increase by 3.1%, after a rise of just 0.8% in 2013.

It said consumers were now a better bet for banks to lend to after four years of falling credit availability. Household debt-to-income ratios have fallen and write-offs on consumer lending are forecast to drop.

The report said: "The pace of growth should increase as households become more confident about their employment and financial situation."

Andrew Goodwin, senior economic advisor to the EY Item Club, said: "2014 will hopefully be the turning point for many UK households' access to 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."

The report also said mortgage lending would grow strongly over the 2014-17, well ahead of continental Europe.

Meanwhile, the climate for businesses starved of credit is expected to improve, with a £10 billion increase in lending and accelerating growth in later years - but this comes after a £20 billion fall last year, according to the report.

Mr Goodwin said: "A £10 billion increase in business lending is a very respectable start to what we believe will be ongoing growth for the next few years.

"However, while this is good news for those businesses who have been starved of finance, it must be seen for what it is, which is just half of the fall that was experienced in 2013.

"All the same, this should not take away from what is a positive step towards more 'normal' lending levels after five years of stagnant and falling lending figures."