Retail
Prospects
In 2008, a slowing UK economy and the effects of the dislocation in financial markets are expected to contribute to a moderation in the markets for UK credit based products and a substantial increase in competition for retail deposits. House price inflation is expected to be flat in 2008. Housing transactions are likely to fall from the levels seen in 2007, although the higher level of product cessations expected in 2008 will continue to underpin the re-mortgage market. The underlying fundamentals of the housing market remain strong and we do not expect a serious downturn in the housing and mortgage markets. In this environment, we will continue to favour profitable mortgage lending over market share with a selective approach to the trade-off between volume, margin and credit risk.
We expect to continue to build upon the strong performances of both the Savings and Banking businesses. In Savings, our multi-brand, multi-channel franchise and status as the number one savings business in the UK give us an important advantage in a tougher overall funding environment.
New mortgage pricing is more favourable, which helps to offset more volatile funding costs and should lead to greater stability in the Retail margin.
Given the subdued condition of the consumer credit market, higher levels of indebtedness and affordability stretch, we will maintain our cautious approach to growth in Credit Cards and Unsecured Personal Loans. The slowing UK economy will put pressure on unsecured borrowers and consequently we expect further reductions in the level of unsecured impairment losses to be gradual.
The ongoing investigations into bank charges and payment protection insurance may both lead to changes in pricing structures in those markets, however following the conclusion of these investigations we will have more certainty on the regulatory environment and will be able to plan accordingly.
Our more cautious approach to credit risk and tight control of costs in recent years means that we are well positioned to trade effectively through more difficult conditions; and our strong customer franchise and multi-brand sales and distribution capability provide a long-term source of competitive advantage.