Demand for consumer borrowing in the UK, 1969–90

Abstract

The extent to which the variation in the flow of UK consumer borrowing, i.e. non-mortgage borrowing by households can be explained by variation in demand-side influences, specifically income, wealth and interest rates, together with government policy controls on consumer credit is examined. The life-cycle hypothesis and the standard two-period consumption model provide the basis for a theoretical model of why some households borrow for consumption purposes. The null hypothesis is that current and past income and current and past wealth have a positive influence on consumer borrowing. The rate of interest has a negative influence. The assumption that the amount of consumer credit traded is essentially demand-determined is shown to be plausible. The preferred empirical model is obtained following a ‘general-to-specific’ approach. The results indicate that: current income and current and past wealth have a positive influence, and that the interest rate (whether nominal or real) has a negative effect; policie...