£5Billion Extra Consumer Spending Expected

The UK economy is set to be thrown a lifeline with a predicted £5billion extra coming from consumer spending in 2012 as a consequence of the banks PPI scandal.

The unexpected sum is part of the compensation being paid to millions of customers who were mis-sold PPI insurance policies.

Around 40 million PPI policies were mis-sold to consumers between 2000 and 2007, with the majority of people being unable to use them and some not even knowing it was added. Until June of last year banks deferred compensating customers over the sale of controversial PPI while a battle with the Financial Services Authority (FSA) raged in the courts.

Since then banks have already paid over £1billion in claims compensation and the FOS is expecting around 165,000 cases in 2012. The overall cost of compensation for the victims of the scandal was estimated by consumer group Which? At 7.6billion based on companies’ own provisions, however other experts have suggested the total could reach over £9 billion.

We feel that this year tighter regulations were needed in order for banks to deal with PPI claims quicker as there are still millions of people who are entitled to compensation. Fortunately it appears the FSA are attempting crackdown on the biggest offenders in the industry as complaints continue to rise.

An investigation by the Financial Mail has found Lloyds TSB and the Royal Bank of Scotland are now sending cheques at a rate of 50,000 a week. Lloyds alone now has over 2,000 staff to deal with PPI claims and believe it’s now handling thirty times more complaint than at this time last year.

Economic advisor to the independent Item forecasting group, Professor Peter Spencer stated, “These figures should impact the big picture. We have been looking at the Olympic Games, where consumer spends could be as much as £7billion. This is potentially similar”.

The key question is whether recipients will want to spend or save the cash, with most financial experts believing this year will see more people emptying their pockets, suggesting many people will retain a sense of entitlement to material goods and luxuries and are likely to spend their money.