UK consumer credit growth falls to 18-month low

Decline will soothe Bank of England fears about reckless lending while household incomes are being squeezed

The UK’s consumer debt boom has eased back after growth in lending on credit cards and loans fell to an 18-month low.

The Bank of England said unsecured consumer credit grew by 9.6% year on year in October, down from 9.8% in September, soothing fears that banks were lending recklessly at a time when household incomes have come under pressure from stagnant pay growth and high inflation.

Britons added £1.5bn to the pile of consumer debt, which rose to more than £205bn.

The Bank of England deputy governor Sir Jon Cunliffe said he did not think British households as a whole were going on a “debt-fuelled binge”, but fast rates of consumer credit growth needed to be watched.

With salary increases averaging 2.2% and prices increasing at an average of 3%, central bank officials have warned high street banks to rein in their risky lending to head off a consumer debt bubble.

Anti-poverty charities, concerned that middle and low-income families are turning to credit to supplement their incomes, have blamed welfare cutbacks for exacerbating the problem.

Peter Tutton, the head of policy at debt charity StepChange, said: “Despite a slight slowdown, consumer credit continues to grow strongly.“This comes against the backdrop of forecasts of the longest sustained period of falling living standards since the 1950s, so the fact that 9 million people are currently using credit in order to cover essential costs should put tackling problem debt high on the policy agenda.”

Howard Archer, an economic adviser to the forecasting group EY Item Club, said: “The Bank of England will be pleased with the slowdown in consumer credit in October and will be looking for a continuation of this trend.

“In its November financial stability report the Bank of England again warned that rapid growth in consumer credit has created a ‘pocket of risk’ and the central bank has also warned that banks risk becoming complacent in their lending behaviour.”

The Bank’s credit condition survey indicated that lenders cut the amount of unsecured credit available in the three months to the end of September at the fastest rate since 2009.

Analysts said the Bank’s message to lenders heightened uncertainty over the outlook for the UK economy, and increased concerns about personal finances were encouraging some consumers to be more cautious in their borrowing.

“However, the persistent squeeze on consumer purchasing power is likely fuelling the need for some consumers to borrow,” Archer said.

In October, the Bank hinted strongly that it planned to raise interest rates, which went up from 0.25% to 0.5% on 2 November.

Estate agent.
Mortgage approvals have dropped for three months in a row. Photograph: Yui Mok/PA

Analysts said the threat of higher interest rates was likely to have dampened consumer credit, which was increasing at a rate of more than 10% earlier this year.

Bank figures also show a fall in the number of mortgages approved by lenders in October, from more than 66,000 in September to 64,575.

The fall in mortgage approvals for house purchases was the third monthly drop in a row and pushed the total to a 13-month low. The gloom was only alleviated by a frenzy of remortgaging approvals, which increased to 51,593, the highest number since October 2008.

Lenders were kept busy by homeowners wanting to lock in low rates before the interest rate rise.

Jeremy Cook, chief economist at WorldFirst, said figures showing a slowdown in corporate borrowing indicated that companies were unwilling to invest while the economic outlook remained uncertain.

“The most interesting dynamic within the numbers may be that loans and overdraft facilities to the nation’s SMEs [small and medium-sized companies] fell by £400m between September and October,” Cook said.

“This highlights that these companies, which represent the backbone of the UK economy and are the largest employers of the UK workforce, are either unable or unwilling to borrow to fund current or future investment projects.”

  • Follow Guardian Business on Twitter at @BusinessDesk, or sign up to the daily Business Today email here.

Contributor

Phillip Inman

The GuardianTramp

Related Content

Article image
Surge in UK consumer borrowing fuels likely interest rate rise
The 9.9% annual growth figure further adds to concerns of unmanageable debt among UK households

Phillip Inman

30, Oct, 2017 @12:13 PM

Article image
UK credit binge approaching levels not seen since 2008 crash
Debt charities issue warning to government after unsecured consumer credit grew at fastest rate in more than 11 years

Phillip Inman Economics correspondent

04, Jan, 2017 @2:52 PM

Credit crunch: Britons buy less of everything except food and shoes

Bad weather and low consumer confidence impacts on retail sales during August

Ashley Seager

08, Sep, 2008 @11:01 PM

Article image
UK shoppers rein in credit card use amid fears over economy
Consumer borrowing growth at four-year low, says Bank of England

Richard Partington Economics correspondent

30, Jan, 2019 @12:16 PM

Article image
UK banks ordered to hold more capital as consumer debt surges
Bank of England brings forward annual stress tests as it grows anxious over lenders’ exposure to consumer credit

Jill Treanor

27, Jun, 2017 @5:19 PM

Article image
Bank of England sounds new alarm over consumer credit binge
Minutes show Bank is growing concerned at mounting risk to lenders as consumers tap looser borrowing conditions

Katie Allen

04, Apr, 2017 @12:17 PM

Article image
Surge in consumer lending could prompt Bank of England intervention
Banks could be forced to strengthen capital positions after surge in loans to near-decade high triggers warning from debt charities

Patrick Collinson and Jill Treanor

30, Nov, 2015 @2:10 PM

Article image
Homeowners repay their mortgages at record rate
Bank of England said that households are now spending the equivalent of 2.7% of their income on repaying their debt

Patrick Collinson

04, Apr, 2011 @5:12 PM

Article image
The roof is being fixed but beware the house crashing beneath it
Consumer spending is driving economic growth but household debt and the house price-income ratio is at a record high. Be afraid

Larry Elliott Economics editor

06, Dec, 2015 @12:31 PM

Article image
Household finances are worse since Brexit vote, says Bank of England
Study of over 6,000 households found an increase in people reporting high mortgage debt, repayment costs, and rents

Richard Partington

15, Dec, 2017 @3:37 PM