What does the dip in consumer confidence mean for Britain?
Last week, against the backdrop of news that the economy actually grew by more than previously thought in Q1 (0.2 per cent instead of 0.1), coupled with positive figures for retail and construction, a survey from GfK found that the consumer confidence index sunk by two points to -9 last month. Despite some uplift in April and May, it is broadly in line with the trend over the past year.
Other data within the survey found that sentiment towards the overall economy plummeted by four points within the same timeframe. Intriguingly, that pessimism extends to views on the wider UK economy’s expected performance over the coming 12 months, with that particular index having fallen from -21 to -25. In terms of personal finance, confidence has dropped by one point too, and current predictions have that slipping by a further two points over the next year.
What is consumer confidence?
Consumer confidence is an economic measure of the typical consumer’s outlook on both the economy and their individual personal finances. This is represented by indices which track survey feedback on a monthly basis, and is represented in the consumer’s views on both present circumstances, and predictions for the future.
A higher consumer confidence index means consumers are more willing to spend, rather than save, on the basis that both their personal finances and the economy will improve for the foreseeable future. Conversely, if the perception of the individual is that their employment is insecure, and/or that a downturn (or feeble economic growth) may lie ahead, consumer confidence is likely to dip, with spending slumping as a result. Other factors which may influence consumer confidence are inflation, household debt, interest rates and the general purchasing climate.
The GfK Consumer Confidence Barometer has been the primary measure of consumer confidence in the UK since 1995. In order to build a complete picture of the economic mood, GfK has indices which record monthly macroeconomic data and consumer feedback, while on a quarterly basis it looks at trends within car purchasing, home buying and home improvements.
Should we be concerned by the downward trend?
Experts read varying amounts into such survey data, but one measure which may set off alarm bells for Britain’s high-street retailers is that of the fall of the Major Purchase Index by one point in June. This index looks at high-value items such as appliances and furniture. Having simultaneously increased in line with improved retail figures over April and May, this change in direction may be a disconcerting portent for a sector which has already had its share of struggles.
Yet last week’s unequivocally negative set of consumer confidence figures also flies in the face of two highly favourable economic indicators: record employment levels, and low borrowing costs. The fall in unemployment has appeared inexorable in the last couple of years, reaching levels not seen since the mid-1970s. The fact that this hasn’t yet translated into higher real wage growth has puzzled economists, and may go some way to explaining why high employment levels haven’t been reflected by greater optimism among consumers. That said, if the jobs market were to remain robust, then, other things equal, this should filter through to consumer confidence.
Additionally, Bank of England rates remain at near 350-year lows at 0.5 per cent, and the climate for borrowing has scarcely been as consumer-friendly as it is now. In itself, this is good news for many consumers, as the cost of borrowing is linked to base rates. The improved odds of a rate hike in August may have impacted GfK’s most recent findings, as those with mortgages could see their monthly repayments increase soon, and therefore have their purchasing power reduced. Yet in the case of personal loans, the APR is usually fixed, and repayments are unaffected by external rate changes.
Consumer confidence and Lending Works
As a responsible lender, consumer confidence is something we keep a close eye on, and we plan accordingly for the ups and downs of the economic cycle. This is reflected by the considerable buffer we presently have in place when comparing forecast arrears and defaults, and the total value of our Lending Works Shield. This should reassure our lenders that if a downturn were to eventuate in the near future, we have the means to protect them from losses.
Indirectly, we also factor consumer confidence into our loan underwriting. At a microeconomic level, household debt, job security and affordability are just some of the criteria we use to assess loan applications, and our team of experts make a determination as to whether the individual will still be able to meet their repayments should their circumstances change, and/or if the economic climate were to worsen. While the latter is less of an exact science, there are still numerous indicators which we consider so as to make an educated decision.
Nevertheless, we remain upbeat that the economy will hold its own through this current period of uncertainty, and ultimately boost consumer confidence as a result. The public finances have been nursed back to better health, growth has been steady, inflation is under control, jobs continue to be created, wages are starting to increase, borrowing rates are competitive, and the UK remains a global leader within financial services (and a magnet for talent and tech).
The biggest danger of all with falling consumer confidence is that it can be a self-fulfilling prophecy; propagating a downturn despite contrary economic forces. Perhaps the economic status quo, and even our direction of travel, are a long way from perfect. But, as individuals, what we think and how we act matters. Let us not forget that, despite sensationalist news headlines and media agendas, there remains a lot to be optimistic about when it comes to our financial futures.
The 2019 ISA season is now in full swing, and it's as good a time as any to focus on financial planning - and, within that, looking ahead to your retirement years to ensure financial security.
The Lifetime ISA (LISA), announced in 2016, would prove to be one of George Osborne’s last flagship gestures to UK savers and investors as Chancellor, eventually launching against a backdrop of anti-climax a year later in April 2017.
Over the last decade, there can be little dispute that the reputation of mainstream banks – and particularly the so-called ‘Big Four’ (HSBC, Barclays, Lloyds and RBS) – is at its lowest ebb.
The peer-to-peer (P2P) lending industry is now regulated by the Financial Conduct Authority (FCA). The regulatory framework has been designed to protect customers and promote effective competition.
Loan underwriting is the process that we undertake to analyse all of the information provided by each loan applicant and their credit file to assess whether or not that applicant meets our minimum loan criteria. As part of that process all data is verified, analysed and summarised to paint a picture of each applicant.
When you earn interest from a regular bank savings account, for example, the bank automatically deducts basic rate tax (currently 20%) before paying your interest. With interest earned from peer-to-peer lending, tax is not deducted automatically so lenders will need to declare their income to HMRC.
As 2018 draws to a close, with our bellies full of Christmas turkey, it's only natural to look back on the past 12 months and reflect. No doubt, it's been a turbulent one economically and politically, and not everyone has had it all their own way.