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Annual growth in consumer credit slowed to three-year low in August

HOUSEHOLDS are showing signs of increased caution over their borrowing following August’s hike in interest rates, as annual growth in consumer credit weakened to its lowest levels in three years.

Borrowing from sources such as credit cards, personal loans and overdrafts increased by 8.1 per cent annually in August, down from 8.5 per cent growth in July, Bank of England figures show.

It was the lowest annual growth seen since an 8 per cent increase in August 2015.

The Bank said that, within the 8.1 per cent annual growth in consumer credit in the latest figures, growth in personal loans and overdrafts was at its weakest since December 2014, while growth in credit card borrowing has remained “broadly stable” for the past 18 months.

The Bank said annual growth in consumer credit is now “well below” a peak of 10.9 per cent seen in November 2016.

The Bank of England base rate was increased from 0.5 per cent to 0.75 per cent in early August, pushing up costs for some borrowers.

Howard Archer, chief economic adviser at EY ITEM Club, said: “It may well be that August’s rise in interest rates fuelled consumer caution over borrowing.”

“The recent impression has been that consumers have become relatively cautious in their borrowing while lenders have certainly become warier about advancing unsecured credit and tightened their lending standards,” he continued.

Recent figures from suggest conditions for borrowers are getting tougher.

It found that the number of balance transfer credit card deals on the market which have an introductory zero-interest period has fallen to its lowest level since Moneyfacts’ records started in 2006.

This could make life harder for credit card borrowers who rely on shifting their debt from one interest-free credit card deal to another.

Peter Tutton, head of policy at StepChange Debt Charity, said: “With consumer confidence slipping over the summer against a backdrop of uncertainty caused by Brexit, it’s perhaps not surprising that credit growth has continued its downward trend.”

“We must keep an eye out for issues arising out of emergency borrowing to ensure lending remains affordable and sustainable in the long term,” he added.

The Bank’s Money and Credit report also showed that 66,440 mortgage approvals were made to home buyers in August – the highest figure in seven months.

The number of approvals for remortgaging increased to 53,125 in August – the highest figure since November 2017.

“Consumer caution over making house purchases may well be magnified in the near term at least by current heightened uncertainties over Brexit,” Mr Archer said.

Source: Irish News