UK Consumer Credit Growth Fastest Since 2019, Mortgage Approvals Fall
UK consumer borrowing increased the most in more than three years in June suggesting that households are relying more on credit amid the cost of living crisis and mortgage approvals declined more than expected as the rising interest rate weigh on the property market.
Individuals borrowed an additional GBP 1.8 billion in consumer credit in June, following GBP 0.9 billion of borrowing in May, the Bank of England reported Friday. This was well above economists’ forecast of GBP 1.0 billion.
The additional consumer credit borrowing in June was split between GBP 1.0 billion on credit cards, and GBP 0.8 billion through other forms of consumer credit.
Consumer credit grew 6.5 percent on a yearly basis, which was the highest rate since May 2019. The increase of 12.5 percent in credit card borrowing was the biggest since November 2005.
By increasing their borrowing and reducing their saving, households would probably only be able to mitigate some of the downward impact on their real spending power from higher inflation, Capital Economics economist Nicholas Farr, said.
With inflation and interest rates only set to rise further, outright declines in consumer spending will soon tip the economy into a recession, the economist added.
Approvals for house purchases, an indicator of future borrowing, decreased to 63,700 in June from 65,700 in May. The expected level was 65,000.
Net borrowing of mortgage debt by individuals decreased to GBP 5.3 billion from GBP 8.0 billion in the previous month.
Data showed that small and medium sized businesses repaid GBP 0.4 billion of bank loans in June, more than the GBP 0.2 billion repaid in May and the 15th consecutive month of net repayments.
Meanwhile, large non-financial businesses’ borrowed GBP 1.3 billion of bank loans in June compared to GBP 1.6 billion repayments in May.
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