High Street Banks Warn Of Rising UK Loan Defaults – Cryptovibes.com – Daily Cryptocurrency and FX News
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As the cost of living soars, Bank of England survey discovered that lenders expect a wave of defaults this spring.
Amid growing concern over soaring living costs, Britain’s biggest banks say that they anticipate a rise in the number of consumers straining to repay credit cards and other loans.
Over the three months to the end of June, high street lenders expect an increase in the number of defaults on unsecured lending and business loans, according to figures from the Bank of England.
Expectations of an increase in demand for consumer borrowing in the months ahead are indicated in the details from its quarterly “credit conditions” survey of the UK’s biggest banks and credit card providers. But it also suggested that despite the anticipated rise in default rates, lenders were not concerned about losses.
The figures indicated a worsening situation that had been developing for several months, as highlighted by Paul Heywood, the chief data and analytics officer at Equifax UK, the consumer credit agency. He stated:
“Significant portions of the UK population are falling into financial difficulty, with families at the lower end of the income scale being hardest hit. The pressures of the cost of living crisis are pushing up demand for credit, especially in the unsecured lending and credit card spaces, while the same inflationary pressures, along with rising interest rates, are quelling demand for discretionary borrowing.”
While economists have said that the measure for the annual rise in the cost of living is likely to breach 9% this month, the highest since 1982, during Margaret Thatcher’s first government, official figures showed UK inflation climbed to 7% in March, the sharpest rate since 1992.
When its monetary policy committee meets early next month, the Bank of England is widely expected to raise interest rates, with the inflation rate currently over three times its official target of 2%.
Average wage growth is failing to keep pace with mounting inflation although it has picked up in recent months and is expected to contribute to the biggest drop in household disposable income since records began in the 1950s.
As lockdown stopped people from taking overseas holidays and kept them away from shops, wealthier households managed to save billions of pounds between them during the pandemic. However, poorer families withstood a bigger financial hit, and are expected to cope with the cost of living emergency this year.
In the coming months, borrowing is likely to get more difficult, according to Sarah Coles, a senior personal finance analyst at the financial platform Hargreaves Lansdown. She explained:
“Demand for loans and credit cards boomed at the start of this year. With inflation gathering momentum and eye-watering price rises for many of the essentials, it has forced more of us to borrow to make ends meet.”
Working up the concern that low-income households were resorting to expensive forms of lending to cope with the rising cost of fuel, clothing, and food, credit card borrowing leaped by £1.5bn in February to £59.5bn, the highest since records began in 1993.
Later this year, the cost of living squeeze will drag down consumer spending, weighing on the economic recovery from Covid, economists have said. So far, however, little reduction in appetite for spending was hinted in figures from the Office for National Statistics (ONS) on April 14.
Over the seven days to 4 April, UK credit and debit card spending showed a slight jump of 2%, including an increase in delayable and social spending, the ONS said.
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