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UK economy continues to struggle, but borrowers don't have to

Jun 10, 2013 Simon Williams

In the wake of the Great Recession, many economies faltered, and some are continuing to struggle to pick back up. Consumers aren't spending and many aren't borrowing. The crux of the matter is that many people cannot - they made bad decisions or were simply dealt a poor hand during the fiscal decline, which will affect their financial standings for years to come.

This is true in the United Kingdom, where the small business and financial sectors have struggled to find solid footing in recent years. Many experts are commenting on the fact that, despite the fact the recession has been over for a while in many parts of the world, it feels like nothing's changed in the U.K. People are still having a rough time, and banks are suffering as much as anyone else.

Bank decisions keeping the economy down
However, according to the Wall Street Journal, the banks are largely at fault for the fiscal issues. The source said that even though one of the nation's largest institutions, the Royal Bank of Scotland Group, received a £45 billion bailout in 2008, it's still mostly publicly owned and some are talking about splitting it into different factions.

"The U.K. government failed to put in enough capital [and] failed to be aggressive enough," former Bank of England monetary policy committee member told the news outlet.

This happened at other banks as well, the WSJ explained, though many aren't floundering quite as much. On the other hand, other banks and lenders have failed, noting that their losses are too big and they'd eventually need a government bailout. Larger banks have also been at the center of the downtrodden situation, the source said, as many government leaders have voiced their regret about not forcing banks to downsize, which would have reduced risk.

Plus, the WSJ reported, a report published by the Bank of England's financial policy committee revealed that if they wanted to amend the fiscal situation, government leaders would have to pump £25 billion in new capital back into the economy.

Instead, the same companies that struggled during the fiscal troubles continued to try to operate as they did pre-recession. "Hoping to quickly return the banks to private ownership, the government chose to not meddle with their strategy," the news source read.

This tightened lending standards, which adversely affected consumers and small businesses alike.

Alternative finance sector to the rescue?
However, there might be a respite for the nation. In other countries, the emergence of a short term lending sphere has acted as a catalyst for the entire economy. For instance, a number of experts credit the American alternative finance sector as being a major driver of the fiscal landscape and a reason why the United States is becoming a major player once again.

As such, financial institutions might want to start investing in and taking more notice of British lenders. These companies provide an invaluable service for consumers - because they have more lax lending standards, like relying on the Payment Reporting Builds Credit scoring model, they can often help a larger number of people. This ranking strategy allows lenders access to an individual's history on utilities accounts. If they have paid accounts off on time, this, among other pieces of information, can boost their alternative credit score.

Even those who are at the subprime level can often find that they are able to borrow from such firms. This can draw in more business, which then yields a larger volume of money being pumped back into the economy.