Aug 04, 2013 Simon Williams
When consumer confidence levels rise, this can affect many different aspects of the economy. For instance, retail - if people are more optimistic about not only their own personal finances but the stability of both the national and global economies, they are more likely to spend their money on luxury items.
This scenario has been essential to the recovery of the U.K. economy. As in many other nations, the U.K.'s fiscal landscape took quite a dive during the height of the global recession, something that was heavily felt by consumers. During this time, lenders - both banking institutions and traditional companies - all but shut their doors to anyone who wasn't a sure thing in terms of creditworthiness.
As consumers across the U.K. become more confident in themselves and their country's financial situation, they're beginning to attempt to once again tap into new lines of credit.
Consumer credit on the rise
Nationwide, consumers have been seeking out more loans than in past months. According to the most recent data, consumer credit rose to £0.7 billion in May after coming in at £0.6 billion in April. This indicates that British individuals are taking on more financial responsibilities and risk because they are relatively secure in the thought that they can continue to remain stable.
This sentiment is backed up by the fact that U.K. consumer confidence has been soaring. The recently released U.K. Consumer Confidence Index published by GfK revealed that in July 2013, the barometer reached its highest point since April 2010.
The final score in July was -16, after taking into account consumers' thoughts on the economy during both the past and the next 12 months. This represents an 11-point increase in the last three months alone. Moreover, the barometer has only seen a decrease once since December 2012, and even then, it was only a 1 point drop.
"Other than the element of the index about whether now is a good time for major purchases, which fell by a trivial one point, all the individual elements of the Index rose by five or seven points," explained GfK Managing Director of Social Research Nick Moon.
Moon's statement indicates that the economy seems ripe for borrowing.
Where are consumers going for financial help?
Some traditional lenders have opened their doors back up to a number of consumers, but British people might be consulting with other organizations - those that helped them during their time of need. In order to mitigate risk while providing borrowing options to those who were cash-strapped, alternative finance ventures such as short term lending companies decided to use different means of analyzing applications.
For instance, many short term lenders eschew traditional consumer credit scores because they don't always present a comprehensive picture of a person's financial stability. A number of these companies instead look to something like a Payment Reporting Builds Credit ranking model. This credit score allows credit bureaus and lenders to take a consumer's history of making timely payments on utilities accounts into consideration. When combined with other financial data, this method tends to give lenders a better idea of how responsible and credit-worthy a would-be borrower actually is.
Should strategies like this continue to become more widespread around the U.K., lenders would likely be able to profit from increased business and economists would see rises in confidence and credit.