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 Q1 2022 survey results are based on responses received from 83 FLA members during January 2022.

The Q1 2022 results reflect the concerns of FLA members about the impact on demand of the squeeze on household disposable incomes over the next year.  The supply issues that have caused a shortage of vehicles and equipment to finance were expected to continue in the short term, but to ease as the year progressed. Business investment was also expected to recover during 2022. FLA members reported few issues regarding the availability of funding although, unsurprisingly, funding costs were expected to increase. Overall, 86% of respondents expected some increase in new business over the next twelve months, with 55% anticipating growth of 10% or more.

Risks and opportunities

Respondents to the Q1 2022 survey identified the ongoing supply issues that have led to shortages of vehicles and equipment to finance as a key risk to the industry outlook. Across FLA markets, respondents were also concerned about further waves and the emergence of new variants of Covid-19 weighing on business and consumer confidence. The UK economy was experiencing a period of high inflation, rising interest rates, and higher taxes which would likely subdue consumer spending as disposable incomes are squeezed. This had the potential to weaken the industry outlook in the short term. The majority of respondents to the Q1 2022 survey expected inflationary pressures to begin to ease during the second half of 2022 and that the official interest rate (Bank Rate) would rise to no more than 1.0% by the end of 2022.

Despite the risks to the industry outlook, respondents to the Q1 2022 survey continued to highlight a range of opportunities for growth in FLA markets over the next year.  The nature of the economic recovery so far meant that there remained pent-up demand for finance from both businesses and consumers. FLA markets had a track record of quickly adapting to a fast-changing environment which would lead to new growth opportunities through digitalisation, the provision of green finance solutions and supporting the levelling-up agenda.

In detail

Optimism about the economic outlook dipped slightly as concerns remained about supply shortages and the impact on consumer spending of the squeeze on household disposable incomes from higher inflation, interest rates and taxes. The Q1 2022 survey showed that 57% of respondents expected some improvement in economic conditions over the next twelve months, compared with 60% in Q4 2021 (Fig. 1).

Supply issues were expected to continue in the short term, but respondents to the Q1 2022 survey anticipated that market conditions would ease as the year progressed and business investment would begin to recover.  Across the divisions, 86% of respondents expected some increase in new business over the next twelve months, with 31% expecting an increase of less than 10% and 55% anticipating an increase of more than 10% (Fig. 2).

Members continued to report a stable picture regarding funding availability over the next year although, unsurprisingly, the majority expected the cost of funding to increase.  Two-thirds of respondents to the Q1 2022 survey expected no change in the availability of funding over the next twelve months, 32% anticipated some increase, and only 1% expected some decrease in funding availability (Fig. 3). The percentage of respondents expecting some increase in the cost of funding over the next year increased from 69% in the Q4 2021 survey to 82% in Q1 2022.  Of the Q1 2022 survey respondents expecting an increase in funding costs, over two-thirds (68%) anticipated that the increase would be slight.

Many members continued to experience difficulty in hiring good quality staff across a broad range of job categories including credit risk, technology, sales, data analysts and finance. The Q1 2022 survey results suggested that 58% of respondents expected some increase in employment by their companies over the next twelve months (Fig. 4), compared with 67% of respondents to the Q4 2021 survey.

The percentage of respondents to the Q1 2022 survey expecting some increase in the number of customers in arrears over the next year was 58%, in line with the Q4 2021 survey.  Just over half of respondents (54%) anticipated only a slight increase (Fig. 5). 

In line with the Q4 2021 survey, the majority of respondents to the Q1 2022 survey anticipated some increase in the number of business insolvencies over the next twelve months (77%), but the majority (63%) expected only a slight increase (Fig. 6).

The percentage of respondents expecting an increase in the number of personal insolvencies over the next twelve months fell from 72% in the Q4 2021 survey to 61% in Q1 2022, with more than a half (54%) expecting only a slight increase (Fig. 7). The trend in these figures recognises that while household disposable incomes were expected to be squeezed during 2022, the end of the furlough scheme had, as yet, not led to a significant increase in arrears overall and the labour market had remained robust.

The outlook for retail motor dealerships was weaker in the Q1 2022 survey than in Q4 2021. Overall, 45% of respondents to the Q1 2022 survey expected some increase in the number of retail motor dealership insolvencies over the next twelve months compared with 38% in Q4 2021 (Fig. 8).

The Q2 2022 Industry Outlook Survey will be published in April 2022.

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

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