UKs Credit Squeeze

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What's going on?

A survey by the Bank of England (BoE) released on Thursday showed British banks are expecting to give out dramatically fewer unsecured consumer loans (a.k.a. those with no collateral pledged, like credit cards) in the next few months which would mean the biggest shrinkage in such loans since 2008s credit crisis (eek)!

What does this mean?

Loans to customers have grown significantly over the past few years as historically low interest rates have made them more affordable for borrowers. In the summer, the BoE warned that banks were giving out too many unsecured loans to consumers, and it appears they are heeding the warning. The banks surveyed also pointed to the increasingly uncertain economic outlook for the UK as the reason they are choosing to take less risk when it comes to lending.

Why should I care?

For you personally: It will likely be tougher to get a personal loan without collateral, but other loans should stay the same.

While the banks are primarily concerned about unsecured consumer lending, other types of credit like mortgages and business loans are expected to hold steady. But if it becomes tougher for individuals to get unsecured loans, it could create somewhat of a cash crunch for those that rely on such loans to fund their spending.

The bigger picture: A credit squeeze adds to the clouds gathering over the UK economy (at least in the short term).

The pounds slide since the Brexit vote has pushed prices higher, as it takes more pounds to buy the same number of imported goods. This, in turn, is stretching peoples wallets while wage growth and household savings remain low. Other troubling signs include the dropping of car sales for the first time in six years, and slowing momentum in the housing market. Add to this the prospect of shrinking loan availability and the picture isnt rosy.

Originally posted as part of the Finimize daily email.

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