Changes in the economy
Since March, we’ve seen a variety of government support schemes across the UK, including bounce back loans, the coronavirus business interruption loan scheme, furlough scheme and eat out to help out. Over 9 million employees in the United Kingdom have been furloughed since the country’s lockdown in mid-March. However, September will see the first significant change in furlough with Government contribution now set at 70% and employers expected to contribute 10% of employee’s salaries for those being furloughed. This will rise to 20% in October, with the scheme finishing at the end of October.
The recession is here
Even in the absence of Covid-19, the UK was due to transition to a period of slower growth, as Brexit and a global slowdown provided strong headwinds. The pandemic has caused the deepest decline on record, with a drop in GDP of 20%. Officially we are in a recession, however, we are experiencing evidence of record levels of growth since lockdown. As the downward decline was a record in its magnitude, growth will follow-suit and we are likely to see record rates of growth. In comparison to last eight recessions, we can see that the current recession sits significantly higher than any other and will be concentrated into two-quarters.
The current official unemployment rate is currently around 4%. When we have supplemented official figures with additional factors, we have calculated the rate to sit closer to 6%. Through further modelling, we believe that the eventual unemployment rate will rise to near 9%. We expect unemployment to rise to the greatest level since the 1980’s, which saw unemployment in double digits. Unemployment volatility is likely to impact over a longer term. The 2008 recession took four years for it to play through. The current recession is likely to also span several years too. Therefore, it is imperative that models are built on accurate data – such as the real unemployment rate. By doing so you will be able to assess actual impact and be forearmed.
Sectors and regions most economically exposed
It is important to look at the sectors against local level insight, in order to understand the impact and manage your portfolio. We can see that accommodation and food services remain the sectors who are currently receiving greatest level of governmental support. This includes initiatives such as:
- Business rates holiday
- Deferring VAT payments
- HMRC Time To Pay scheme
There has been a significant reduction of UK employees on the furlough scheme, from 34% at the peak, to 25% of Britain’s 27.9 million employees on furlough in August. The furlough reality is different when you look at sector analysis and therefore presents a very different story, and pace of recovery. We can see that accommodation and food services continue to show the greatest number of people on furlough followed by the arts, entertainment, recreation sector.
Emergency Payment Holidays
One of the biggest masking impacts on this crisis in terms of true arrears levels and delinquencies, has been the impact on emergency payment holidays and the consumer.
We have seen many consumers accessing forbearance (EPH), without necessary need. Almost 30% of the households with payment holidays have not faced a change in their earnings, therefore took out payment holidays on a precautionary basis. We expect these households to be in a position where they will become better payers and continue to make credit commitments.
Supervisory Bank of England intelligence from the beginning of July indicates that although there were only limited signs of household distress at this stage, consumer credit, rather than mortgage debt, was proving more challenging for many households.
How Experian can help
Experian can help you understand where the highest areas of risk are on your portfolio, how these are going to emerge and what impact this will have. Experian are continuing to work with industry leaders to assess economic exposure, portfolio impact and support modelling and scenarios. We are in a unique, and unrivalled position, of being able to overlay economic insight onto credit data to give a back and forward view.
The breadth of our data and analytical expertise can help you quickly, at scale, answer many critical questions. Helping you understand the range of outcomes for your customers and plan upscaling of the collection’s operation.
To find out more about how we can help you manage portfolio risk , contact us. You may also find it useful to have access to our economic scenario services, updated monthly, we can arm you with a continual view of the macroeconomic conditions, as well as support your specific needs for assessing economic exposure, and likely change.
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