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 2023 survey results are based on responses received from 78 FLA members during September 2023.
The Q3 2023 survey results showed some weakening in optimism about the outlook for the UK economy over the next year as interest rates were expected to be higher for longer. The latest forecasts from the Bank of England published in the November 2023 Monetary Policy Report suggested the economy would not grow in 2024 following a sustained period of high inflation and higher interest rates. Despite a weaker outlook for the economy, respondents’ expectations for growth held steady compared with Q2 2023 as almost three-quarters (74%) anticipated some increase in new business over the next twelve months. Respondents highlighted opportunities for growth through increasing market share, diversification and leveraging technology.
Risks and opportunities
The high inflation and higher interest rate environment continued to be a major risk to the economy and to the performance of member companies. The outlook for consumer spending and business investment remained subdued as the full impact of high inflation and interest rates had yet to feed through to the economy. The number of people unemployed was also expected to increase as businesses faced lower demand and tighter margins. Respondents highlighted the risks posed directly to their businesses from higher cost of funds and impairments. Views varied about the direction of cost of funds over the next year, with 33% of respondents anticipating a further increase, while 41% expected some decrease. Overall, the Q3 2023 survey suggested that the majority of respondents expected slight increases in the number of customers in arrears and in personal and business insolvencies. The political uncertainty created in the run up to the next UK General Election was also identified as a risk to company performance.
Respondents identified a range of opportunities for their companies over the next year including increasing market share through consolidation and acquisition. There would be opportunities to launch new products and for diversification into new sectors and through new partnerships. Respondents also saw opportunities for growth through leveraging technology to improve customer service. Opportunities would continue to arise from supporting businesses transition to net zero.
Members’ optimism about the UK economic outlook has weakened since the Q2 2023 survey, with the percentage of respondents expecting some improvement in economic conditions over the next twelve months down from 55% in Q2 2023 to 44% in Q3 2023. The proportion of respondents that anticipated some worsening in economic conditions over the next year increased from 30% in Q2 2023 to 40% in Q3 2023 (see Fig. 1).
Members remained positive about their ability to grow new business despite the weakness of the economic outlook. Overall, 74% of respondents to the Q3 2023 survey expected some increase in new business over the next twelve months, in line with the Q2 2023 survey (73%). The proportion of respondents anticipating some decrease in new business over the next year held steady at 16% (Fig. 2).
Almost two thirds of respondents (65%) to the Q3 2023 survey expected no change in the availability of funding over the next year, while the proportion of respondents anticipating some increase in availability rose from 20% in Q2 2023 to 32% in Q3 2023 (Fig. 3). Respondents were divided as to the direction of the cost of funds over the next twelve months, with 41% expecting some decrease, 33% anticipating some increase, and 26% expecting the cost to hold steady.
The Q3 2023 survey suggested that almost half of respondents (48%) expected some increase in employment by their companies over the next twelve months, up from 41% in Q2 2023 (Fig. 4).
The majority of respondents to the Q3 2023 survey anticipated some increase in the number of customers in arrears over the next year (82%), although all of these expected the increase to be slight (Fig. 5).
The Q3 2023 survey showed that the majority of respondents expected some increase in the number of business insolvencies over the next twelve months. Overall, 89% of respondents anticipated some increase, with 76% expecting the increase to be slight and 14% expecting a significant increase (Fig. 6).
Similarly, the majority of respondents to the Q3 2023 survey (78%) expected some increase in the number of personal insolvencies over the next year. This was down from 92% in Q2 2022. Within the Q3 2023 total, 67% of respondents expected a slight increase in personal insolvencies and 12% anticipated the increase to be significant (Fig. 7).
Among MFD respondents to the Q3 2023 survey, the percentage expecting some increase in the number of retail motor dealership insolvencies over the next twelve months was 50%, compared with 42% in Q2 2023. 46% of MFD respondents anticipated only a slight increase (Fig. 8).
The Q4 2023 Industry Outlook Survey will be published in January 2024.
Note to charts: Cumulative totals are subject to rounding differences.