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 Q2 2021 survey results are based on responses received from 81 FLA members during April 2021.
The latest survey of FLA members showed a marked improvement in optimism about the potential for growth during 2021. While the industry is mindful of the possibility for higher unemployment and a dip in confidence once Government support schemes are withdrawn, 90% of respondents expected some increase in new business this year, with two thirds anticipating growth of more than 10%.
FLA members provide support directly to businesses and households across all regions of the UK and have demonstrated the underlying strength of the industry by continuing to meet demand throughout the pandemic over the last year. Respondents stated that a strong recovery in the economy as restrictions are lifted will provide opportunities for new business growth, including helping SMEs in some of the hardest hit hospitality and leisure sectors. The industry’s ability to leverage new technology will provide growth opportunities – respondents highlighted the digitalisation of the car buying process, including the provision of finance, as a good example of this. Further opportunities would arise from Government funding of infrastructure projects and initiatives to meet net-zero targets. Opportunities to serve non-prime customers have also arisen from the withdrawal of lenders in these markets.
Respondents identified a number of threats to the optimism for growth in FLA markets over the next year. The success of the vaccination programme has undoubtedly raised expectations of a strong economic recovery. However, further waves of the virus and of lockdown measures to deal with it could hit business and consumer confidence and lead to a much weaker rebound in economic activity. Respondents are also concerned about the impact of the withdrawal of Government support schemes on unemployment and insolvency levels which may lead to an increase in default rates and bad debts. Some non-bank finance companies remain concerned about their ability to access funding and the cost of it. Disruption to the supply of assets financed by members caused by Brexit and the shortage of microchips could adversely affect new business levels.
Members have become more optimistic about the outlook for the economy as 82% of respondents to the Q2 2021 survey expected some improvement in economic conditions over the next twelve months, up from 52% expecting an improvement to conditions in Q1 2021 (Fig. 1).
FLA members are cautiously optimistic about the potential for growth this year. Despite the risk of a dip in confidence once the Government support schemes come to an end, 90% of respondents to the Q2 2021 survey expected new business growth over the next twelve months (Fig. 2).
Respondents’ views on the availability of funding have improved since the Q1 2021 survey. While the majority of respondents continued to expect no change in the availability of funding over the next twelve months (62%), over a third (35%) anticipated some increase in funding availability (Fig. 3). A smaller proportion of respondents in the Q2 2021 survey (42%) than in Q1 2021 (62%) expected the cost of funding to remain stable over the next year, with 47% anticipating some increase in funding costs.
The potential for recovery in FLA markets over the next year has improved the outlook for employment within the industry. The Q2 2021 survey showed that nearly two-thirds of respondents (65%) expected some increase in employment by their companies over the next twelve months, compared with only 40% of respondents to the Q1 2021 survey (Fig. 4).
The extension of the furlough scheme and the prospects of a strong recovery in the wider economy has led to a much improved picture for the UK labour market. The Bank of England in the May 2021 Monetary Policy Report (MPR) has projected the UK employment rate to peak at 5.4% in Q3 2021, down from a forecast of 7.8% at the time of the February 2021 MPR. While mindful of the likely increase in unemployment once the Government support schemes come to an end, FLA members are also more optimistic about the level of arrears over the next year than at the time of the Q1 2021 survey. Two-thirds of respondents to the Q2 2021 survey expected some increase in the number of customers in arrears, with the majority (59%) expecting only a slight increase (Fig. 5).
The majority of respondents continue to expect the impact of the pandemic to lead to higher levels of business insolvencies. 88% of respondents expected some increase in the number of UK business insolvencies over the next twelve months, but only 29% anticipated a significant increase compared with 49% at the time of the Q1 2021 survey (Fig. 6).
Overall, 85% of respondents to the Q2 2021 survey expected some increase in the number of personal insolvencies over the next twelve months, with three-quarters expecting a slight increase (Fig. 7).
60% of respondents expected some increase in the number of retail motor dealership insolvencies over the next twelve months, although most (54%) expected this increase to be slight (Fig. 8).
The Q3 2021 Industry Outlook Survey will be published in July 2021.
Note to charts: Cumulative totals are subject to rounding differences.