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 Q3 2022 survey results are based on responses received from 74 FLA members during July 2022.

The Q3 2022 survey results reflected the concerns of member companies about the impact on the UK economy of the “cost of living crisis” and the ongoing supply shortages of vehicles and equipment to finance.  A slowdown in consumer spending and weak business investment would lead to lower new business growth over the next year. Pressure on household incomes and business margins may also lead to a deterioration of book performance, although at this stage the impact was expected to be only slight.  The majority of respondents continued to report no change in funding availability over the next year, but expected the cost of funding to increase. Expectations of new business growth have reduced since the Q2 2022 survey. Overall, 58% of respondents anticipated some increase in new business over the next twelve months, with 30% anticipating growth of less than 10%.


Risks and opportunities

Members highlighted a number of significant risks to company performance over the next year.  Of major concern across the membership was the adverse impact on the economy of the “cost of living crisis" that has developed as consumer price inflation has risen to reach a 40-year high of 9.4% in June 2022 and real earnings fell by a record rate of 2.8% in the three months to May.  Monetary policy response to curb the rise in inflation has been to increase Bank Rate to 1.25%, the highest since January 2009, and while remaining historically low compared with before the 2008 Financial Crisis, the upward trend in interest rate rises would put further pressure on household incomes and increase funding costs. Member companies were concerned a significant slowdown in consumer spending and business investment would lead to lower new business volumes and that the pressure on household incomes and business margins may also lead to a deterioration of book performance.  

Some respondents reported that the supply shortages of equipment and vehicles to finance over the last year were starting to ease, but the majority of members indicated ongoing issues with lack of supply that would continue into 2023.  The war in Ukraine and China’s zero-Covid policy were creating further uncertainty around when supply chain issues would be resolved.  Many respondents highlighted that longer lead times were increasing the pipeline of new business.  Buoyant used equipment and vehicle prices were supporting growth in new business in some sectors.

A significant number of member companies continued to report difficulties in hiring staff across a wide range of areas of expertise including legal, compliance, credit risk, collections, IT, underwriting, and analytics. It continued to be difficult to get high quality staff with relevant experience, and salary expectations remained high versus experience.

Respondents continued to be positive about the opportunities for growth despite the near-term challenges highlighted above.  FLA members will play a vital role in supporting businesses of all sizes to invest in greener assets and to meet net-zero targets set by the Government.  Further opportunities for growth would arise from digitalisation of the customer journey and by utilising the industry’s expertise to help SMEs continue to recover post-pandemic. There was scope for product innovation and new partnerships being built with retailers and brokers.  There were also opportunities for increasing market share through acquisitions as markets restructure following the pandemic.

In detail

The Q3 2022 survey showed that only 8% of respondents expected some improvement in economic conditions over the next twelve months, compared with 20% in Q2 2022. Overall, 81% of respondents expected some worsening in economic conditions over the next year, up from 74% in Q2 2022 (Fig. 1). 

Industry optimism about new business growth over the next year has waned in recent months as uncertainty about the economic outlook has increased.  Overall, 58% of respondents expected some increase in new business over the next twelve months, compared with 74% in the Q2 2022 survey. The proportion of respondents expecting growth of less than 10% was 30%; between 10% and 20% was 21%; and more than 20% was 7% (Fig. 2).

The majority of respondents (70%) continued to report no change in the availability of funding over the next year (Fig. 3).  In line with the Q2 2022 survey results, the overwhelming majority (92%) expected some increase in the cost of funding over the next year.  The Q3 2022 survey results showed that 34% of respondents anticipated a significant increase in cost of funds, up from 31% in Q2 2022.

A significant number of member companies continued to report difficulties in hiring staff across a wide range of areas of expertise including legal, compliance, credit risk, collections, IT, underwriting, and analytics. The Q3 2022 survey results showed that 51% of respondents expected some increase in employment by their companies over the next twelve months, with 50% anticipating a slight increase.  The proportion of respondents expecting the number of people employed by their companies to hold steady was 39%, and only 9% expected the number to decrease.  These results were in line with Q2 2022 (Fig. 4).

With pressures on household incomes from higher inflation, interest rates, and taxes, the percentage of respondents expecting some increase in the number of customers in arrears over the next year rose from 84% in Q2 2022 to 92% in the Q3 2022 survey.  The majority (78%) continued to expect the increase to be slight (Fig. 5).

Overall, 92% of respondents to the Q3 2022 survey expected some increase in the number of business insolvencies over the next twelve months, with 70% expecting only a slight increase (Fig. 6).

The overwhelming majority of respondents (97%) anticipated an increase in the number of personal insolvencies over the next year.  The percentage of respondents expecting a significant increase rose from 19% in Q2 2022 to 31% in the Q3 2022 survey (Fig. 7).

Among MFD respondents, the percentage expecting some increase in the number of retail motor dealership insolvencies over the next twelve months was 58%, up from 42% in Q2 2022. All MFD respondents expecting an increase anticipated it to be only slight (Fig. 8).

The Q3 2022 Industry Outlook Survey will be published in October 2022.

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

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