New surveys show that consumer confidence in the economy continues to fall, hitting its lowest level since 1990. The consumer confidence barometer produced by GfK/NOP is now only one point above its lowest ever level, which was –35 recorded in March 1990 at the height of the then recession. The figures for June show a drop of five points to –34, in a measure of consumer confidence that has been used since 1974.
Analyst Rachael Joy from GfK commented, ‘With rising inflation, gloomy forecasts for interest rates and soaring fuel, utility and food prices dominating the front page headlines, it’s no surprise that confidence in the general economy is almost in freefall.’
With confidence so low, fewer people are able to find loans and mortgage approvals have dropped alarmingly this year according to Bank of England figures. Again, the numbers reflect those of the 1990s, with there being 64% fewer loan approvals for house purchases this year than last. The figure for mortgage approvals in May was 42,000, the lowest level for any one month since records began in 1993. Remortgages also dropped, with just 90,000 being taken out, compared to 100,000 in April.
Ed Stansfield from Capital Economics commenting on the poor figures said, ‘They are clear evidence in the change in attitude among mortgage lenders and homebuyers. People no longer want to borrow and those that do want to borrow are not being allowed to by the lenders.’
One silver lining for low-income families who find it difficult to find affordable loans is the announcement that rules regarding credit unions are to be relaxed. The new rules will allow credit organisations to compete with mainstream financial services companies, and allow families to find an alternative to expensive doorstep loans.
In announcing the changes, the economic secretary and city minister, Kitty Ussher said that the cut in red tape would enable credit unions to get rid of some of the ‘outdated and unnecessary’ restrictions presently placed upon them making affordable loans a reality for more struggling families. She said, ‘We want to make it easier for families to access the affordable credit on their doorstep that is offered by credit unions, rather than having to turn to more expensive schemes, or at the extreme end, illegal loan sharks.’
Less welcome was the news this week was the issuing of hundreds of children’s debit cards by a high street bank. To the fury of many groups, including MPs, parents and consumer groups, children as young as 11 years old have been sent the cards by Lloyds TSB without their parents’ knowledge. Until now the bank has only issued cards to under-16s that allow them to withdraw cash from ATMs. However, the new Visa cards can be used to shop online.
Liberal Democrat Treasury spokesman, Vincent Cable, said, ‘Once banks have got someone hooked, they keep them for most of their lives. This is a way of seducing new customers, but a really irresponsible and dangerous way. You would have thought banks might have learned some lessons from their irresponsible lending on credit cards and mortgages. But now they seem to be compounding the problems by adopting the grossly irresponsible policy of encouraging youngsters to spend on these debit cards.’
Debit cards continue to be the most common method of payment in the UK and are increasing popular. The UK payments body, Apacs, said that debit card use outstripped that of credit cards last year, and was nearly five times that of the level of a decade earlier. Sandra Quinn of Apacs said, Over the past three years we’ve seen a pattern emerge; debit cards have increasingly become consumer’s first choice over other options, such as cash, cheques and credit cards.’