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This pointer to a difficult period ahead for the retail financial services industry is the key finding from the 24th UK Financial Activity Bulletin produced by John Gilbert Financial Research based on research commissioned from GfK NOP.

In the past two years the proportion of adults expecting to be financially engaged has fallen from 84 per cent to 67 per cent, a fall of some 8 million people.

This sharp decline in expected activity comes against a backdrop of slow growth in disposable income, the recent credit crunch and threatens many jobs in the all important financial services sector.

Increase in financially inactive adults 

The two-thirds of adults expecting to save, invest or borrow is the lowest proportion since the survey started in March 2002.

The headline FAB Activity Index, based on a 2-quarter moving average with Q3/Q4 2002 =100, fell to 87.5, a record low, down from 92.9 in September and 99.7 in December 2006. In December 2005 the FAB Index reached its record high of 106.5.

Compared to a year ago the number of adults financially inactive has increased from an estimated 14.2 million to 16.4 million.

There are some 2.4 million fewer people intending to save or invest and 1.3 million fewer intending to borrow this year compared to last year.

The weakness of financial activity comes against a background of consumer uncertainty and squeezed household budgets. Consumer confidence is at its lowest since December 1995 and the spending climate is viewed as its weakest since June 1991.

Report author John Gilbert said that the latest survey findings confirm the very difficult operating outlook for retail financial services businesses predicted in last quarters survey.

Borrowing intentions have been weak for some time but the concern for many providers in this survey is the fall in savings intentions which will add to retail funding pressures.

Regional differences  

A feature of the survey has been the differences in financial activity across the UK regions. While demand in many areas for financial services has weakened during 2007, in London demand has been consistently much stronger.

In the latest survey people in East Anglia (76 per cent) and London (71 per cent) expect to be the most financially engaged. The least financially engaged are people living in the North (57 per cent) and Northern Ireland (59 per cent).

Londoners expect to be the most financially active –undertaking 2 or more activities – 57 per cent compared with 48 per cent overall.

Proportionately more people in East Anglia (68 per cent) expect to save/invest in the next six months while more Londoners expect to borrow (20 per cent) than anywhere else in the UK. At the same time more Londoners also intend to repay debt (29 per cent compared to 21 per cent overall).

Overall 58 per cent of adults expect to save or invest in the coming 6 months, with greater expected activity in the South West (61 per cent), London, Scotland and the South East (60 per cent). Lowest saving/investment is expected in the North (51 per cent) and Northern Ireland (48 per cent).

The proportion of Londoners expecting to put down a deposit on a property to buy fell from 15 per cent to 11 per cent quarter-on-quarter although this remains well above the national average (7 per cent).

This fall suggests some cooling of the London market is in prospect. The FAB London Property Purchase Intentions Index is down from 183.1 in September to 160.8 in December. This is almost double the national index which fell to a record low of 85.4 from 94.6 in September.

Last quarter Lloyds TSB returned to the top position for the first time since September 2006. In the latest survey Barclays regained pole position for the fourth quarter out of five.

Among the best performers this quarter are both HBOS main brands, Alliance & Leicester and The Co-operative Bank.

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Related links

• John Gilbert Financial Research