Interest rate rises have slowed economic activity significantly

The Bank of England’s Money Policy Committee (MPC) is widely expected to leave its base rate at 5.25% in the forthcoming review, with increasing signs that rate rises designed to address inflation are starting to bite.

A series of key indicators have combined over recent weeks to indicate falling economic activity by consumers. According to the most recent metrics, house values, consumer credit borrowing, and consumer confidence have all declined.

• GfK’s Consumer Confidence Index decreased nine points to -30 in October, and the Major Purchase Index plunged by 14 points
• Consumer credit, including car dealership finance and personal loans, fell from £1.0 billion in August to £0.8 billion in September.
• Net mortgage borrowing by individuals decreased from £1.1 billion in August to -£0.9 billion in September. While net approvals, which is an indicator of future borrowing, continued to fall from 45,400 in August to 43,300
• UK house prices fell at the fastest annual rate in 14 years in September, as prices fell by 4.7% in September, the biggest year-on-year decrease since 2009

Reflecting on the outlook, Debbie McKay (pictured), MotoNovo Finance’s Commercial Director, notes: “For many people, just paying everyday bills has become a challenge, but even those who are better off are concerned about falling pension pots and house values.

“When it comes to used car purchasing, the first eight months of 2023 saw motor finance lending by volume down 6% than in the same period in 2022.

“For many people in the critical Gen X and Millennial generations, the rising inflation and interest rates of the last eighteen months have been a new phenomenon. While interest rates may be plateauing, the road to recovery is likely to be lengthy.

“In light of the Consumer Duty requirements, affordability, measured good outcomes and support for the vulnerable must feature prominently. Experience suggests that this type of short-term customer care always delivers long-term value and loyalty.”