Unless you’ve been under a rock for the last year you will be aware that the UK held a referendum to opt out of the European Union, popularly known as the Brexit vote, and of those that voted, the majority wanted OUT.
It was claimed that this would see the British international trade laws being revised to exclude other nations in the European Union.
However, this has not sat well with the global economic crisis bringing banks in the country on the verge of a major price war, to try and provide lending which has been defeated by the Brexit vote.
Is more borrowing the answer?
Major banks have already made plans revise their interest rates in order to convince customers to borrow from them, whereby previously quick loan lenders were being employed, even with increased threat of the recession. Alcohol, transport, and hotels industries are the highest hit by the high inflation, which has translated to higher hotel prices translating, generally to a higher cost of living for Brits.
Factories first to change prices
UK factories have already revised their prices upwards which is expected to trickle down to consumers. Even before the Brexit vote, lenders had already seen a reduced uptake of commercial loans and mortgages, which is usually their highest source of revenue.
Is the UK economy set for another recession?
Britain’s economy actually started dipping before the vote in May in fact. With consumer borrowing going up by £2 billion from a year before. More than 2 million people were in default on their credit card, with another 2 million suffering persistent debt.
Another 1.6 million made minimum payments repeatedly. Despite banks being under pressure by the government to cushion lending in order to support the economy, those in the banking sector clearly know that successful loan applications translates into more jobs, more innovation and more businesses being created.
What the banks are doing
Financial experts noted that banks and retailers are the most exposed to the weaker domestic British economy. HSBC launched a campaign to get money to small businesses, seeing corporate overdraft rates up to £25,000 extended. This was followed by RBS who are now offering the figure of £25,000 in small business loans at an annual percentage rate of 7.99 per year to be repaid in 5 years.
This follows a 10% drop in mortgage borrowing in the first month after the referendum. Lloyds, on the other hand, reviewed its mortgage book by 1% in the first half of the year. This was seen as a move to cushion them from high competition many in the property market, as they took their lending into other sectors.
Knight Frank, a property services firm, confirmed Many players confirmed a lower mortgage servicing cost for people with savings but feared a rate reversal due you rising inflation. Others in this sector claimed that there would be a rush to revise upwards the lending available to small businesses and consumers who already bear the burden of mortgage debt, warning that it would erode the culture of free money developed by the availability of lower rates for longer periods.