You can use the search function to find a range of UK Finance material, from consultation responses to thought leadership to blogs, or to find content on a range of topics from Capital Markets & Wholesale to Payments & Innovation.
When UK Finance launched its Q1 Household Finance Review last month in collaboration with Accenture, we commented that the benign environment for household finances in early 2022 was short-lived. We warned of tougher times ahead as inflation continues to bite.
- Household Finance Review Q1
Within days of publication, many news stories confirmed the tightening squeeze. Among other developments, we saw that a tank of petrol for the average family car hit £100 for the first time. The Confederation of British Industry (CBI) warns that household spending could actually shrink next year.
With more hikes in interest rates and energy prices in the pipeline, the pressure isn’t going to ease any time soon. And fast-rising food costs mean people are seeing the effects of inflation in their weekly shop – a very visible sign of how it’s eating away at their spending power.
Times are increasingly tough for many consumers. As they wrestle with these issues, what can – and should – banks be doing to assist?
Perhaps the most obvious move is for banks to help consumers get a better understanding of their finances – both outgoings and incomings – because in times like this, information is power. Both incumbents and neobanks can put the right information in customers’ hands by ramping up their personal financial management (PFM) apps, This would help empower individuals to make better financial choices.
As well as using these services to keep tabs on how much they’re spending and what on, consumers can also check the size of their regular payments and consider fixed or variable options for outgoings like home energy. As banks enhance their PFM offerings, they can also increase take-up by promoting their availability more widely.
There’s a competitive opportunity here: PFM services have not historically been particularly popular, but their time may now have come. The keys to success are simplicity and an ability to give consumers a clearer view of their finances, leading to a potential call to action.
Meanwhile, drawing on the experience of COVID-19, there’s scope for banks to dust off and revive some of the empathetic measures they used to support their customers.
For their part, consumers themselves need to speak proactively to their lenders if they have a problem – and this openness is something banks should encourage. These days, a frequent area for conversations may be buy-now-pay-later (BNPL) debt, which is reported to be rising fast especially among younger consumers. This is an area for us to keep a close eye on as an industry to ensure we’re not encouraging problems like over-indebtedness. For many people, straightening out their finances may require some difficult trade-offs: in the current situation, there are no easy solutions.
The overall picture? Sadly, the spending squeeze and pressure on household finances are likely to get worse before they get better. Consumers and banks need to work together to ride out the storm. Our Q2 and Q3 reports will start to provide a clearer picture.
Disclaimer: This content is provided for general information purposes and is not intended to be used in place of consultation with our professional advisors. No sponsorship, endorsement or approval of this content by the owners of such marks is intended, expressed or implied.
Krishnapriya Banerjee, Managing Director of UKI Banking, Accenture