Industry Outlook Survey

Overview

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 Q4 2021 survey results are based on responses received from 82 FLA members during October 2021.

The outlook surveys for Q1-Q3 2021 showed significant improvement in members’ expectations for the UK economy and the markets in which they operate.  In the latest survey for Q4 2021 members are less optimistic about the economic outlook because of concerns over the impact on the recovery of supply chain disruption, higher inflation and further waves of Covid-19.  However, they remained optimistic that the underlying strength of FLA markets would lead to further new business growth over the next year. The Q4 2021 survey shows that 89% of respondents expected some increase in new business over the next twelve months, with 59% anticipating growth of 10% or more.

As economies across the world have begun to recover from the Covid-19 pandemic, a surge in demand has led to disruption to the supply of materials, goods and labour.  Inflationary pressures have developed which has caused central banks to signal official interest rates may need to rise sooner than previously anticipated. Respondents to the Q4 2021 survey expected supply constraints to last well into 2022 and, in some instances, orders for assets would not be fulfilled until 2023.   Members also identified demand-side risks to the performance of FLA markets over the next year. While the labour market remained relatively strong and the end of the furlough scheme was not expected to lead to a significant increase in the number of customers in arrears, respondents raised concerns about the impact on consumer spending of the squeeze on incomes from higher inflation and taxes.  Respondents also identified operational risks to business performance from difficulties in retaining and attracting high-quality staff and from cyber fraud as digital offerings increased.

Respondents to the Q4 2021 survey highlighted a number of opportunities for FLA markets over the next year.  There remained pent-up demand for finance from consumers and businesses despite the large volume of Government subsidised lending to SMEs during the pandemic. FLA markets are seen to be highly competitive which would provide opportunities for growing market share. Investment in digital technologies would open up new channels to market. Members would also play a key role in helping to deliver net zero targets by financing assets that use greener and more efficient technologies.

In detail

Member concerns about the impact on the economic recovery of supply chain disruption, higher inflation and further waves of Covid-19 have contributed to a fall in optimism about the outlook for the economy. The Q4 2021 survey showed that 60% of respondents expected some improvement in economic conditions over the next twelve months, compared with 84% in Q3 2021 (Fig. 1).

Many FLA markets grew in the third quarter of 2021 as they continued to recover from the pandemic. However, supply chain issues have been particularly acute in the car market which was reflected in the 17% fall in new business volumes reported by the point of sale consumer car finance market in Q3 2021.  Despite the volatility in supply, pent-up demand following the pandemic and the bringing forward of investment to avoid further expected supply issues meant the overwhelming majority of respondents to the Q4 2021 survey anticipated some increase in new business over the next year (89%) (Fig. 2).

Overall, respondents expected few issues with funding availability over the next year, but anticipated that the cost of funding would increase.  More than 60% of respondents to the Q4 2021 survey expected no change in the availability of funding over the next twelve months, 31% anticipated some increase, and only 7% expected some decrease in funding availability (Fig. 3). The percentage of respondents expecting some increase in the cost of funding over the next year rose from 52% in the Q3 2021 survey to 69% in Q4 2021.

Members have experienced challenges in hiring staff and wage inflation across a wide range of operational roles. The Q4 2021 survey results show that two thirds of respondents expected some increase in employment by their companies over the next twelve months (Fig. 4), compared with 59% of respondents to the Q3 2021 survey.

The majority of respondents to the Q4 2021 survey did not expect the end of the furlough scheme in September 2021 to lead to a significant increase in the number of their customers in arrears as the labour market remained strong and there has been close, effective management of portfolios.  The percentage of respondents anticipating some increase in the number of customers in arrears over the next year was 57%, compared with 64% in Q3 2021.  Just over half of respondents (51%) anticipated only a slight increase (Fig. 5). 

Overall, 73% of respondents to the Q4 2021 survey anticipated some increase in the number of business insolvencies over the next twelve months, but the majority (60%) expected only a slight increase (Fig. 6).

72% of respondents to the Q4 2021 survey expected some increase in the number of personal insolvencies over the next twelve months, with more than two thirds (68%) expecting only a slight increase (Fig. 7). The overall position has improved since the Q3 2021 survey when 78% of respondents expected personal insolvencies to increase.

Members viewed that the outlook for retail motor dealerships has improved. Overall, 38% of respondents to the Q4 2021 survey expected some increase in the number of retail motor dealership insolvencies over the next twelve months compared with 52% in Q3 2021 (Fig. 8).

The Q1 2022 Industry Outlook Survey will be published in January 2022.

Note to charts: Cumulative totals are subject to rounding differences.

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