The UK Consumer Credit Market in 2006 and Future Outlook (Market Focus)

Table of Contents

• CATALYST
• SUMMARY
• ANALYSIS
  • The consumer credit market delivered a poor performance in 2006
    • Advances dropped once again, though balances grew by a small degree
    • A number of factors can be attributed to the consumer credit market' s poor performance
      • Despite a well performing UK economy in 2006, the consumer credit market did not follow suit
      • Successive base rate rises had a slowing effect on borrowing over 2006
      • Despite full employment, unemployment increased slightly over 2006, contributing to the consumer credit market' s contraction
      • Though the housing market outperformed expectations in 2006, the consumer credit market still faltered
  • Further analysis highlighted that most individual product lines performed badly over 2006
    • In terms of balances outstanding, most products contracted except for retail finance and personal loans
      • Fluctuations in the share of the total consumer credit market show personal loans to have gained significantly
    • In terms of gross advances, all consumer credit products contracted except for overdrafts
      • Fluctuations in performance saw credit cards and overdrafts gain more share of the total consumer credit market
    • Meanwhile, point of sale finance continued to struggle
      • Motor finance had another poor year in 2006
      • Retail finance also had another poor year in 2006
  • What' s next for the consumer credit market?
    • forecasting model assesses the relationship of macroeconomic factors with respect to consumer credit products
    • Under the neutral view, new lending in the consumer credit market falls in 2007 and picks up thereafter
      • The consumer credit market will reach £229.4 billion in 2011
      • In terms of individual product lines, virtually all products will suffer in 2007 but will pick up thereafter
    • Under a pessimistic view of the economy, the consumer credit market will contract significantly in 2007 before picking up again in 2008
      • The consumer credit market will dip to a low of £199.8 billion in 2007 under a pessimistic scenario
      • In terms of individual product lines, retail and motor finance both continue their decline, with overdrafts performing best of all
    • Under an optimistic view of the economy, the consumer credit market will begin prospering again
      • The consumer credit market will expand at an annual average rate of 3.0 per cent to reach £238.1 billion in 2011
      • In terms of individual product lines, retail finance will be the only underperforming product
• APPENDIX
  • Supplementary data
  • Methodology
  • Forecasting methodology
    • Choice of economic variables
    • Model outputs
    • Bespoke scenario based forecasting
  • Definitions
    • General definitions
      • Bank of England base rate
      • Balances outstanding
      • CAGR
      • Consumer credit
      • Gross advances
      • Overdraft
    • Definitions of point of sale motor and retail finance products
      • Motor finance products available at the point of sale
      • Retail finance products available at the point of sale
  • Further reading
    • European consumer credit reports
    • UK consumer credit reports
    • UK consumer credit briefings
    • Forthcoming consumer credit briefings
  • Relevant links
  • Ask the analyst
  • Disclaimer
  • List of Tables
    • Table 1: Balances outstanding and gross advances in the consumer credit market, 2002-2006
    • Table 2: Consumer credit balances outstanding by product, 2002-2006
    • Table 3: Market share of consumer credit balances outstanding by product line, 2002-2006
    • Table 4: Consumer credit gross advances split by product, 2002-2006
    • Table 5: Market share of gross advances in the consumer credit market by product line, 2002-2006
    • Table 6: New and used car POS motor finance balances outstanding, 2002-2006
    • Table 7: New and used car POS motor finance gross advances, 2002-2006
    • Table 8: New car finance gross advances by product line, 2002-2006
    • Table 9: Used car finance gross advances by product line, 2002-2006
    • Table 10: Retail finance balances outstanding by product line, 2002-2006
    • Table 11: Retail finance gross advances by product line, 2002-2006
    • Table 12: Forecast performance of the consumer credit market drivers under the neutral scenario, 2005-2011f
    • Table 13: Consumer credit forecasts under a neutral view of the economy, 2006-2011f
    • Table 14: Forecast performance of the consumer credit market drivers under the pessimistic scenario, 2005-2011f
    • Table 15: Consumer credit forecasts under a pessimistic view of the economy, 2006-2011f
    • Table 16: Forecast performance of the consumer credit market drivers under the optimistic scenario, 2005-2011f
    • Table 17: Consumer credit forecasts under an optimistic view of the economy, 2006-2011f
    • Table 18: 12 month year-on-year change in UK house prices, January 2002-December 2006
  • List of Figures
    • Figure 1: Advances dropped by 4.5 per cent in 2006, though balances grew by a small amount, 2002-2006
    • Figure 2: Consumer confidence continued to fall through 2006, May 2004 -December 2006
    • Figure 3: The housing market performed significantly above expectations in 2006, January 2002-December 2006
    • Figure 4: Unsecured personal loans experienced the strongest growth over the last five years, 2002-2006
    • Figure 5: Unsecured personal loans have gained an extra share of 6.8 per cent in the last five years while credit cards, motor and retail finance have all lost share, 2002-2006
    • Figure 6: Except for overdrafts, new lending on all consumer credit products suffered from a poor performance in 2006, 2002-2006
    • Figure 7: Credit cards and overdrafts have gained share while unsecured personal loans have lost share, 2002-2006
    • Figure 8: The share of used car finance within the motor finance market declined slightly in 2006, 2002-2006
    • Figure 9: Gross lending in both the new and used car finance markets declined in 2006, 2002-2006
    • Figure 10: Reversing the trend somewhat, two of three retail finance product lines saw growth in balances outstanding over 2006, 2002-2006
    • Figure 11: Gross advances for all product lines within retail finance have followed a downward trend since 2004, 2002-2006
    • Figure 12: The consumer credit market will steadily increase and reach £229.4 billion in 2011f, 2006-2011f
    • Figure 13: Under the pessimistic scenario, the consumer credit market will drop to a low of £199.8 billion in gross advances in 2007, 2006-2011f
    • Figure 14: Under an optimistic view of the economy, the consumer credit market will grow very strongly over the next five years, 2006-2011f
    • Figure 15: Point of sale product aggregations used within this briefing