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Finance experts predict another credit crunch by 2022

Written by: Paloma Kubiak
Credit analysts are concerned at the extraordinary rate of growth of UK debt, with two thirds predicting that another credit crunch is likely to happen within the next five years.

A poll of more than 200 of the world’s leading experts in credit has revealed the level of consumer debt in the UK has become a ‘serious problem’.

As part of the University of Edinburgh Business School’s Credit Risk and Credit Scoring Conference, the experts said the Bank of England was right to be concerned about increasing levels of UK consumer debt.

Two thirds (66%) said a credit crunch is likely by 2022 while 38% believe a financial crisis could hit sooner – within the next three years.

Just in July, the Bank announced that unsecured consumer credit has risen to £200bn for the first time since 2008.

If the levels of borrowing continue, the experts (91%) expect an increase in the rate of UK consumers defaulting on repayments.

The credit issue is more apparent in the UK than overseas, with 46% of the credit experts believing credit is too easily accessible in the UK, compared to 26% of those from other countries.

On Brexit, the group suggested that a soft rather than a hard Brexit, as well as restricting lending criteria, could improve financial stability.

When asked, three quarters (73%) predicted the UK’s departure from the EU will harm people’s ability to get credit when they need it.

‘Lenders complacent about lending levels’

Professor Jonathan Crook, director of the credit research centre at the University of Edinburgh Business School, said: “The view of our expert delegation echoes concerns that have been expressed recently by the Bank of England about lenders being complacent about consumer lending levels.

“Having been reluctant to publicly commit to rate rises, it’s unlikely we’ll see any changes this week. But reality may bite sooner than expected if lenders, concerned about an increased incidence of consumer defaults, increase interest rates to help off-set the risk.”

Crook said all eyes are on Brexit negotiations at the moment as trade talks continue and Moody’s has already warned that the UK could be looking at a credit downgrade if negotiations fail to get the right sort of deal.

He said: “The simple truth is that this situation is unprecedented and we need talks to progress further before we can better predict what will happen. For now, the global experts are clear that we’ll be feeling the effects of our departure from the EU for years, perhaps decades, to come.”

If you’re struggling with debt, see’s How to get out of debt guide.

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