The FLA’s Industry Outlook Survey gauges senior executives’ opinions across the asset finance, consumer finance and motor finance markets about the outlook for the UK economy and the markets they represent. The Q3 2021 survey results are based on responses received from 86 FLA members during July 2021.
The latest outlook survey results show that overall FLA members remain optimistic about the outlook for the economy and opportunities for growth in their markets over the next year despite concerns about disruption to the economic recovery from further waves of Covid-19. The Q3 2021 survey shows that 92% of respondents expected some increase in new business over the next twelve months, with 69% anticipating growth of more than 10%.
FLA markets have rebounded as restrictions have been lifted, but not all of the ground lost as a result of the pandemic has yet been recovered. Respondents to the Q3 2021 survey felt that the UK economy was entering a critical stage which would demonstrate how successful the vaccination programme is in combatting Covid-19. A continued strong economic recovery, led by both business investment and household spending, would provide significant growth opportunities for FLA markets. The pandemic has accelerated the digitalisation of businesses and processes and this will provide further opportunities for FLA members to help companies invest in new technology and to enhance their own digital offerings. Respondents continued to identify opportunities for growth from Government funding of infrastructure projects, initiatives to meet net-zero targets, and a strong used car market in the near-term at least. The pandemic was likely to lead to some consolidation across financial services and reduced appetite to lend in some instances. This would provide opportunities for member companies to support underserved customers, including consumers in non-prime markets and SMEs seeking to rebuild their businesses following the crisis.
However, there remain significant risks to the performance of FLA markets over the next year. Respondents stated that the economic outlook was highly uncertain as a new wave of Covid-19 infections hits the UK, and because of the ongoing fallout from Brexit, which both have the potential to adversely affect the timing and extent of the UK’s recovery. Component shortages have led to supply chain disruptions and members have also been affected by a general lack of availability of assets. This has contributed to inflationary pressures and in some cases led to a reduction in demand because of the higher cost of assets financed. Respondents continued to highlight the risks of higher unemployment and insolvencies leading to increases in default rates and bad debts once Government support schemes come to an end. Government subsidised lending over the last year may also lead to “debt overhang”, particularly among SMEs, and consequently reduce demand for asset finance. Respondents mentioned that digitalisation has led to an increased risk of cyber fraud. This, and difficulties in retaining and attracting high-quality staff, were identified by respondents as additional risks to business performance.
Overall, members have maintained their optimism about the outlook for the economy, with 84% of respondents to the Q3 2021 survey expecting some improvement in economic conditions over the next twelve months (Fig. 1).
FLA markets reported significant growth in new business during Q2 2021 largely reflecting the adverse impact of restrictions to deal with Covid-19 during the first lockdown in Q2 2020. As expected, these growth rates have begun to moderate, but members remain optimistic about the prospects for new business growth over the next twelve months. The percentage of respondents to the Q3 2021 survey expecting some growth in new business was 92%, up from 90% in Q2 2021 (Fig. 2).
Respondents’ views on the availability and cost of funding are in line with those reported in the Q2 2021 survey. Over half of respondents (56%) to the Q3 2021 survey expected no change in the availability of funding over the next twelve months (Fig. 3). The percentage anticipating some increase in funding availability over the next year was 42%, up from 35% in Q2 2021 (Fig. 5). Just over half of respondents (52%) expected some increase in the cost of funding over the next year, while 38% expected no change.
Optimism about better economic conditions and further growth in new business meant that the majority of respondents continued to expect some increase in employment levels over the next year. The Q3 2021 survey results show that 59% of respondents expected some increase in employment by their companies over the next twelve months (Fig. 4), compared with 65% of respondents to the Q2 2021 survey.
The UK labour market has continued to show improvement in recent months, with the number of vacancies surpassing pre-pandemic levels, and a sharp reduction in the number of employees on furlough. The latest Oxford Economic Forecasts (published 23 July 2021) suggested that the unemployment rate would peak at 5.0% in Q4 2021. Consequently, FLA members remain cautiously optimistic about the number of customers in arrears over the next year – 64% of respondents to the Q3 2021 survey expected some increase, with the majority (53%) anticipating only a slight increase (Fig. 5).
The majority of respondents (61%) expected only a slight increase in the number of business insolvencies over the next twelve months, while 22% expected a significant increase. This is in line with the Q2 2021 survey results (Fig. 6).
Overall, 78% of respondents to the Q3 2021 survey expected some increase in the number of personal insolvencies over the next twelve months, with 61% expecting only a slight increase. The overall position has improved since the Q2 2021 survey when 85% of respondents expected personal insolvencies to increase (Fig. 7).
The percentage of respondents expecting some increase in the number of retail motor dealership insolvencies over the next twelve months, fell from 60% in Q2 2021 to 52% in the Q3 2021 survey (Fig. 8).
The Q4 2021 Industry Outlook Survey will be published in October 2021.
Note to charts: Cumulative totals are subject to rounding differences.