Household borrowing shoots up as consumers throw off the shackles

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Britons increased their borrowing in November by the highest amount since July 2020.

Net consumer credit rose by £1.23 billion, above the £800 million predicted by economists, according to the latest credit conditions survey by the Bank of England. The largest portion of the growth came from an extra £900 million of borrowing on credit cards.

The rise adds to data indicating that the economy picked up in the middle of the fourth quarter, but the progress could be short-lived because the figures pre-date the surge in cases of the Omicron Covid variant.

Bethany Beckett, at Capital Economics, the consultancy, expects that the appetite for unsecured borrowing will have reduced since November. She said that the stock of “excess” savings accumulated by households during the pandemic had begun to decline, leading to more “normal” borrowing and saving behaviour.

“These data tally with the similarly big 1.2 per cent month-on-month rise in retail sales in November and point to a pick-up in consumer spending,” she said. “Meanwhile, the rise in household cash deposits in November of £4.5 billion was slower than October’s £5.2 billion rise and below the 2019 monthly average of £4.6 billion. That meant the stock of ‘excess savings’ accumulated by households during the pandemic actually declined by £100 million in November, which was the first fall since the start of the pandemic.”

The number of mortgages approved hit its lowest level since June 2020. About 67,000 loans were approved for house purchases in November, a marginal drop from 67,100 the month before. City analysts had predicted they would fall even further to 66,000.

Mortgage borrowing more than doubled to reach £3.7 billion after a dip in October. The the stamp duty holiday on house purchases ended on September 30.

Martin Beck, chief economic adviser to the EY Item Club, said that the levels of mortgage borrowing were likely to set the standard for the “new normal” since the onset of the pandemic. He said that the housing market would become more stable this year after prices ended 2021 at record highs. Annual price growth reached its highest in 15 years, according to analysis by Nationwide.

Tom Pugh, an economist at RSM UK, the accountancy group, said that the borrowing figures and strong retail sales data for November suggested reasonably strong consumer spending, but he added: “This could just have been driven by earlier Christmas shopping and it seems apparent that the emergence of the Omicron variant caused consumers to retreat in December and January. As a result, we are expecting GDP to shrink about 1 per cent from November to January before rebounding in February.”

People who did their Christmas shopping early amid fears of supply shortages are thought to have contributed to the unexpected rise of 1.4 per cent in November’s retail volumes.

The drop in the savings rate reflects people trying to “sustain real consumption while inflation is soaring, rather than a rapidly strengthening recovery”, Samuel Tombs, at Pantheon Macroeconomics, said. Inflation is expected by many experts to peak at about 6 per cent in April next year.