Consumer confidence crashes as interest rates rise
Consumer credit confidence fell sharply in Q2 2007, according to the Personal Credit Index from CreditExpert.co.uk. The Index, which measures financial confidence as a simple, single figure, slumped by four points (from 100 to 96) - the largest quarterly fall so far recorded. The combination of five interest rate rises and flooding in the Midlands in June are likely contributors to the drop.
Londoners have felt the pinch most as the capital’s confidence has plummeted to a record low of 89 from last quarter’s 97. If interest rates continue to rise as predicted, then London’s credit confidence may continue to tumble.
Possibly the most significant drop is among those living in Wales and the Midlands, where many are feeling the effects of one of the wettest summers on record and where confidence fell nine points to 100 - the largest single drop this quarter.
Flooding in mid-June seems a likely cause of negativity as homeowners had to deal with the prospect of replacing damaged possessions. With more floods currently hitting the Midlands, and with many people being hit for a second time in a month, credit confidence in the next quarter seems likely to drop even further.
The research also reveals that the South continues a steady decline, dropping six points to 92. Indeed, it is the only region never to have exceeded the January 2006 benchmark of 100. Only Scotland and the North of England are bucking the trend. There, financial confidence has risen two points - but at 99 is still below the Index starting level.
Higher house prices and larger mortgages in London and South East England mean interest rate rises have had a greater impact on residents there than those in Scotland and the North. Higher confidence in Scotland, in particular, and the North may be caused by higher government spending per head in those areas than other parts of the UK.
Confidence in paying bills has also taken a knock. The number of adults who feel ‘not very confident’ of paying their bills on time has risen by half to 9%, which corresponds to nearly three million adults. Almost half (48%) of adult bill payers remain ‘very confident’ about paying on time.
Meanwhile, financial strain is being felt by many Brits, with 4% of borrowers now ‘very uncomfortable’ with the level of their debts. A further 8% are ‘fairly uncomfortable’ about their outstanding loans, equating to a total of four million adults.