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UK consumers shun credit cards as Brexit looms - business live UK consumers shun credit cards as Brexit looms - business live
(35 minutes later)
Over in Greece the ripple effects of the country’s successful bond sale yesterday – the first since Athens exited its final bailout program – continue to be felt today with yields on Greek bonds falling sharply. Yields on five-year bonds struck a six-month low of 2.928% in what analysts were interpreting as further good news for prime minister Alexis Tsipras, as he basks in global praise for successfully ending the decades-long name row over Macedonia which had helped clear the way for Tuesday’s bond sale
French president Emmanual Macron was the latest to praise the accord – ratified by the Greek MPs last week – an an example of problem solving at its best for Europe.
Tsipras, however, has not been as loudly applauded for his decision Monday to push ahead with an 11% increase of the minimum wage. That move is believed to conflict with the debt-stricken country’s low productivity rates, and which could yet test the patience of creditors still monitoring Athens’ fiscal progress.
Here’s our economics correspondent, Richard Partington, on today’s UK credit figures:Here’s our economics correspondent, Richard Partington, on today’s UK credit figures:
The boom in consumer borrowing across Britain has cooled to the slowest annual growth rate in four years, according to official figures, as households rein in their spending.The boom in consumer borrowing across Britain has cooled to the slowest annual growth rate in four years, according to official figures, as households rein in their spending.
The Bank of England said annual consumer credit growth slowed to 6.6% in December, continuing a trend for weaker levels of household borrowing on credit cards, personal loans and car finance deals.The Bank of England said annual consumer credit growth slowed to 6.6% in December, continuing a trend for weaker levels of household borrowing on credit cards, personal loans and car finance deals.
In a reflection of the slowdown in consumer spending over the key festive shopping period, the amount borrowed last month dipped to £700m, below the average £1bn per month for the previous six months.In a reflection of the slowdown in consumer spending over the key festive shopping period, the amount borrowed last month dipped to £700m, below the average £1bn per month for the previous six months.
The Bank said credit card borrowing was particularly weak, with only £100m put on plastic last month compared with an average of about £300m per month since July....The Bank said credit card borrowing was particularly weak, with only £100m put on plastic last month compared with an average of about £300m per month since July....
More here:More here:
UK shoppers rein in credit card use amid fears over economyUK shoppers rein in credit card use amid fears over economy
Fast food chain McDonalds has just beaten Wall Street forecasts, thanks to strong international growth (although the US market lagged behind).Fast food chain McDonalds has just beaten Wall Street forecasts, thanks to strong international growth (although the US market lagged behind).
McDonalds posted earnings per share of $1.97, beating forecasts of $1.89. Revenues were slightly ahead of estimates, at $5.163bn, with global like-for-like sales up 4.4%.McDonalds posted earnings per share of $1.97, beating forecasts of $1.89. Revenues were slightly ahead of estimates, at $5.163bn, with global like-for-like sales up 4.4%.
In the UK, McDonalds has posted more than 10 years of growth in a row (going back to the financial crisis).In the UK, McDonalds has posted more than 10 years of growth in a row (going back to the financial crisis).
Paul Pomroy, CEO of McDonald’s UK and Ireland said:Paul Pomroy, CEO of McDonald’s UK and Ireland said:
“2018 was a strong year for our business; together with our franchisees, we served over a billion customers, closed the year with a record-breaking month in December, and have now delivered 51 consecutive quarters of sales and guest count growth. We are pleased to be succeeding by continuing to listen and invest in what customers want: choice, value and convenience, and doing right by our people.“2018 was a strong year for our business; together with our franchisees, we served over a billion customers, closed the year with a record-breaking month in December, and have now delivered 51 consecutive quarters of sales and guest count growth. We are pleased to be succeeding by continuing to listen and invest in what customers want: choice, value and convenience, and doing right by our people.
Perhaps surprisingly, coffee is now a huge area - with coffee drinkers the most frequent customers. A London-based barista trial is now being expanded to the Midlands...Perhaps surprisingly, coffee is now a huge area - with coffee drinkers the most frequent customers. A London-based barista trial is now being expanded to the Midlands...
Over in America, strong employment data suggests the government shutdown hasn’t caused immediate harm to the labor market.Over in America, strong employment data suggests the government shutdown hasn’t caused immediate harm to the labor market.
213,000 new jobs were created by US companies this month, the latest ADP survey shows. That’s a solid figure, beating forecasts of 181,000.213,000 new jobs were created by US companies this month, the latest ADP survey shows. That’s a solid figure, beating forecasts of 181,000.
It bodes well for Friday’s Non-Farm Payroll (covering public and private sector jobs).It bodes well for Friday’s Non-Farm Payroll (covering public and private sector jobs).
But....the impact of leaving hundreds of thousands of Federal workers unpaid for weeks may not be fully felt for some time.But....the impact of leaving hundreds of thousands of Federal workers unpaid for weeks may not be fully felt for some time.
#UnitedStates ADP #Employment Change at 213K https://t.co/LOS8b95mlz pic.twitter.com/ilcltjkQd4#UnitedStates ADP #Employment Change at 213K https://t.co/LOS8b95mlz pic.twitter.com/ilcltjkQd4
Stocks continue to rally in London, despite this morning’s weak consumer credit figures, and the ongoing Brexit uncertainty.Stocks continue to rally in London, despite this morning’s weak consumer credit figures, and the ongoing Brexit uncertainty.
The FTSE 100 index is now 105 points higher at 6939, extending yesterday’s rally.The FTSE 100 index is now 105 points higher at 6939, extending yesterday’s rally.
Nearly ever company on the index is up, with exporters and miners continuing to get a boost from the pound’s slide last night.Nearly ever company on the index is up, with exporters and miners continuing to get a boost from the pound’s slide last night.
Laith Khalaf, Senior Analyst at Hargreaves Lansdown, says retail investors have been shunning the London stock market since the 2016 EU referendum, taking £11bn from UK equity funds.Laith Khalaf, Senior Analyst at Hargreaves Lansdown, says retail investors have been shunning the London stock market since the 2016 EU referendum, taking £11bn from UK equity funds.
But perhaps now’s the time to buy?But perhaps now’s the time to buy?
As this chart shows, the yield (or return) on UK shares is the highest since the financial crisis.As this chart shows, the yield (or return) on UK shares is the highest since the financial crisis.
Khalaf writes that investors should look to the long term:Khalaf writes that investors should look to the long term:
While it’s difficult to envisage right now, the Brexit blues depressing the UK stock market will eventually pass. It may yet get worse before it gets better, but investors putting money in the market today should be considering the returns they will get out to 2029, not just in 2019.While it’s difficult to envisage right now, the Brexit blues depressing the UK stock market will eventually pass. It may yet get worse before it gets better, but investors putting money in the market today should be considering the returns they will get out to 2029, not just in 2019.
In today’s unpredictable political environment, diversification is critical, so that whichever way the Brexit cookie crumbles, some of your portfolio is performing well. However huge sums have been withdrawn from UK equity funds since the EU referendum was announced, and hence some investors may now have little exposure to the UK stock market. That means turning down an attractive value opportunity for the long term, and even in the short term may mean they miss out if there’s an improvement in the Brexit outlook.’In today’s unpredictable political environment, diversification is critical, so that whichever way the Brexit cookie crumbles, some of your portfolio is performing well. However huge sums have been withdrawn from UK equity funds since the EU referendum was announced, and hence some investors may now have little exposure to the UK stock market. That means turning down an attractive value opportunity for the long term, and even in the short term may mean they miss out if there’s an improvement in the Brexit outlook.’
Germany’s BGA trade body isn’t pulling its punches over Brexit, as we enter the final two months before exit day.Germany’s BGA trade body isn’t pulling its punches over Brexit, as we enter the final two months before exit day.
In a statement, BGA declared that the lack of a finalised deal means:In a statement, BGA declared that the lack of a finalised deal means:
“The German and especially the British economies are heading for a huge disaster.”“The German and especially the British economies are heading for a huge disaster.”
German, British economies heading for disaster over Brexit situation - BGA https://t.co/5xw8pAoaJQ pic.twitter.com/75wt9rA03OGerman, British economies heading for disaster over Brexit situation - BGA https://t.co/5xw8pAoaJQ pic.twitter.com/75wt9rA03O
I mentioned earlier that a cloud of gloom was covering the eurozone. Now, the latest consumer sentiment report shows that morale has dropped to a two-year low.I mentioned earlier that a cloud of gloom was covering the eurozone. Now, the latest consumer sentiment report shows that morale has dropped to a two-year low.
The EC’s economic sentiment index has dropped to 106.2 points in January, the 7th monthly fall in a row - and the lowest level since November 2016.The EC’s economic sentiment index has dropped to 106.2 points in January, the 7th monthly fall in a row - and the lowest level since November 2016.
Reuters has more details:Reuters has more details:
Sentiment in industry fell to 0.5 points in January from 2.3 in December, in line with market expectations.Sentiment in industry fell to 0.5 points in January from 2.3 in December, in line with market expectations.
The mood of consumers picked up to -7.9 after December’s steep fall to -8.3.The mood of consumers picked up to -7.9 after December’s steep fall to -8.3.
However, retail trade sentiment slipped to -1.9 points in January from -0.1 in December.However, retail trade sentiment slipped to -1.9 points in January from -0.1 in December.
Sentiment in services, a sector which produces two thirds of the euro zone GDP, went down to 11.0 points, almost matching expectations of a 11.1 reading.Sentiment in services, a sector which produces two thirds of the euro zone GDP, went down to 11.0 points, almost matching expectations of a 11.1 reading.
Economist Emanuele Canagrati of BP Prime says eurozone morale is “not good”.Economist Emanuele Canagrati of BP Prime says eurozone morale is “not good”.
bad news for Eurozone economy: the Business Climate indicator plunges to 0.69 in January, worse than expected 0.75 and the lowest level since Nov 2016. Also @EU_Commission Business and Consumer Survey falls to 106.2 the lowest since Sep 2016bad news for Eurozone economy: the Business Climate indicator plunges to 0.69 in January, worse than expected 0.75 and the lowest level since Nov 2016. Also @EU_Commission Business and Consumer Survey falls to 106.2 the lowest since Sep 2016
Finally, Eurozone Services Sentiment falls to 11.0, from previous 12.2, the lowest since Sep 2016. The morale in the eurozone is not good... @graemeweardenFinally, Eurozone Services Sentiment falls to 11.0, from previous 12.2, the lowest since Sep 2016. The morale in the eurozone is not good... @graemewearden
Britain’s high streets are in enough trouble, without consumers snapping their credit cards (metaphorically speaking).Britain’s high streets are in enough trouble, without consumers snapping their credit cards (metaphorically speaking).
New analysis shows that the average town in England and Wales has lost 8% of its shops in the last five years, rising to 20% in Stoke and Blackpool.New analysis shows that the average town in England and Wales has lost 8% of its shops in the last five years, rising to 20% in Stoke and Blackpool.
High street crisis: stark new analysis shows extent of closuresHigh street crisis: stark new analysis shows extent of closures
Josie Dent, economist at the CEBR, says the slowdown in credit growth is due to nervous households struggling with “unsustainable levels of debt”, and unwilling or unable to take on any more.Josie Dent, economist at the CEBR, says the slowdown in credit growth is due to nervous households struggling with “unsustainable levels of debt”, and unwilling or unable to take on any more.
She writes:She writes:
This month Cebr research with YouGov found that UK consumer confidence continued to decline in January, sinking to its lowest level since May 2013. This low level of confidence will be making many hesitant to borrow - as shown by the low rate of growth of credit card debt.This month Cebr research with YouGov found that UK consumer confidence continued to decline in January, sinking to its lowest level since May 2013. This low level of confidence will be making many hesitant to borrow - as shown by the low rate of growth of credit card debt.
To make ends meet many households are instead cutting back expenditure, for which the struggling high street provides evidence, as many consumers have curbed spending on retail goods.To make ends meet many households are instead cutting back expenditure, for which the struggling high street provides evidence, as many consumers have curbed spending on retail goods.
Dent also points to Tuesday’s data, showing a big jump in individuals falling into insolvency in 2018.Dent also points to Tuesday’s data, showing a big jump in individuals falling into insolvency in 2018.
UK personal insolvencies hit seven-year highUK personal insolvencies hit seven-year high
Economist Sam Tombs has spotted that UK consumer credit is now slowing at the fastest rate since the financial crisis:Economist Sam Tombs has spotted that UK consumer credit is now slowing at the fastest rate since the financial crisis:
The net increase in unsecured borrowing likely financed just 0.7% of all purchases, down from 0.9% in Q3 and 1.4% a year earlier. The MPC was complacent last year to suggest that because credit only accounted for <2% of all spending, it posed no risks to the growth outlook. pic.twitter.com/SmYc9qEHWGThe net increase in unsecured borrowing likely financed just 0.7% of all purchases, down from 0.9% in Q3 and 1.4% a year earlier. The MPC was complacent last year to suggest that because credit only accounted for <2% of all spending, it posed no risks to the growth outlook. pic.twitter.com/SmYc9qEHWG
In some ways, the slowdown in UK credit growth is welcome.In some ways, the slowdown in UK credit growth is welcome.
Back in 2017, the Bank of England was worried that consumer credit was booming at 10% growth per year. That could create a borrowing bubble that will burst when the economy stumbles.Back in 2017, the Bank of England was worried that consumer credit was booming at 10% growth per year. That could create a borrowing bubble that will burst when the economy stumbles.
Earlier this month, the TUC warned that Britain’s mountain of unsecured debt has hit a record high of £428bn, or £15,385 per household [however that includes student loans, which arguably should be treated as deferred income tax].Earlier this month, the TUC warned that Britain’s mountain of unsecured debt has hit a record high of £428bn, or £15,385 per household [however that includes student loans, which arguably should be treated as deferred income tax].
However, Britain’s stretched retailers will worry that consumers are cutting back, just as Brexit hits confidence.However, Britain’s stretched retailers will worry that consumers are cutting back, just as Brexit hits confidence.
The slowdown in credit growth can certainly be pinned on Brexit, says economist Howard Archer of the EY Item Club.The slowdown in credit growth can certainly be pinned on Brexit, says economist Howard Archer of the EY Item Club.
He believes borrowers and lenders have both become more cautious about the economic outlook, and Brexit uncertainty.He believes borrowers and lenders have both become more cautious about the economic outlook, and Brexit uncertainty.
Archer writes:Archer writes:
The ongoing slowdown in net unsecured consumer credit growth to a 4-year low in December reinforces belief that heightened uncertainties focused on Brexit are likely to weigh down on the economy in the near term at least. Significantly, the latest Bank of England credit conditions survey showed lenders expect the demand for unsecured consumer credit to fall in the first quarter of 2019 at the fastest rate since records began in 2007.The ongoing slowdown in net unsecured consumer credit growth to a 4-year low in December reinforces belief that heightened uncertainties focused on Brexit are likely to weigh down on the economy in the near term at least. Significantly, the latest Bank of England credit conditions survey showed lenders expect the demand for unsecured consumer credit to fall in the first quarter of 2019 at the fastest rate since records began in 2007.
Heightened concerns over Brexit and the economic outlook, the very low household savings ratio and the prospect of gradual interest rate rises over the coming months are likely to limit consumer willingness to borrow.Heightened concerns over Brexit and the economic outlook, the very low household savings ratio and the prospect of gradual interest rate rises over the coming months are likely to limit consumer willingness to borrow.
Meanwhile, lenders have become more careful about advancing unsecured credit - the fourth quarter of 2018 saw lenders further reduce the amount of unsecured credit available to households and again tighten lending standards.Meanwhile, lenders have become more careful about advancing unsecured credit - the fourth quarter of 2018 saw lenders further reduce the amount of unsecured credit available to households and again tighten lending standards.
Newsflash: Lending to British consumers has slowed to its weakest growth since late 2014, as people cut back on credit cards.Newsflash: Lending to British consumers has slowed to its weakest growth since late 2014, as people cut back on credit cards.
Mortgage approvals have fallen too, in the latest sign that Brexit uncertainty is weighing on the economy.Mortgage approvals have fallen too, in the latest sign that Brexit uncertainty is weighing on the economy.
New Bank of England data shows that annual growth in unsecured consumer lending dropped to 6.6% in December, down from 7.2% in November. That’s the smallest increase since December 2014.New Bank of England data shows that annual growth in unsecured consumer lending dropped to 6.6% in December, down from 7.2% in November. That’s the smallest increase since December 2014.
The BoE says:The BoE says:
Annual consumer credit growth slowed to 6.6% in December, reflecting the continuation of relatively weak flows of new lending. The net monthly flow in December fell to £0.7 billion, reflecting less extra borrowing on credit cards.Annual consumer credit growth slowed to 6.6% in December, reflecting the continuation of relatively weak flows of new lending. The net monthly flow in December fell to £0.7 billion, reflecting less extra borrowing on credit cards.
Instead of hitting their credit cards, many families have been squirrelling away their spare cash. The Bank reports that UK households “significantly increased their deposits in interest-bearing instant access savings accounts in December”.Instead of hitting their credit cards, many families have been squirrelling away their spare cash. The Bank reports that UK households “significantly increased their deposits in interest-bearing instant access savings accounts in December”.
The BoE also reported that 63,793 mortgages were approved in December, down from 63,793 in November. That’s the lowest since April, suggesting the housing market is slowing (although December isn’t a bumper time for house sales, due to Christmas).The BoE also reported that 63,793 mortgages were approved in December, down from 63,793 in November. That’s the lowest since April, suggesting the housing market is slowing (although December isn’t a bumper time for house sales, due to Christmas).