Fears of higher inflation and a squeeze on incomes may have put a brake on consumer spending last month, according to the latest figures from the British Bankers’ Association (BBA).
The latest data shows that borrowing on loans, credit cards and overdrafts slowed significantly in May, ahead of the general election. However, the total amount of consumer debt in the UK continues to grow, albeit at a slower rate.
Personal debt grew at an annual pace of 5.1% in May – a sharp decline in the 6.4% growth rate seen in April, according to the BBA. It said this was the weakest borrowing increase since October 2015.
Within these figures growth in credit card borrowing fell from 6.4% to 5.5% - which the BBA said pointed to “weaker retail sales volumes”.
The most rapid slowdown was in the growth of loans and overdrafts. The growth in this type of borrowing fell from 6.3% in April to 4.8% in May.
There was also a slowdown in the housing market: with banks approving 40,347 mortgages for house purchase in May, compared to 40,686 in April. This is the lowest figure since September last year.
Slowest Growth in Savings Rates for 6 Years
However, despite this slowdown in borrowing, UK consumers have not increased the amount of money they are saving. Personal deposits grew at a rate of 2.6% in the year to the end of May – the slowest annual growth rate in saving since December 2011.
There have been repeated warnings about the levels of personal debt in the UK. Both the Financial Conduct Authority and the Bank of England have said that there must be “vigilance” over this issue – with concerns that levels of consumer debt are now similar than those seen prior to the financial crisis and subsequent credit crunch.
However, at the same time there will be concerns about the effect on the UK economy of a slowdown in consumer spending, which has helped prop up the UK’s economic growth rate over the last year. With inflation rising at a faster rate than average wages there have now been two months of negative real wage growth. The BBA said this was likely to be a factor in these latest borrowing figures.
Eric Leenders, the managing director for retail banking at the BBA said: “This month’s figures show that in the run up to the general election credit growth in personal loans, cards and overdrafts has slowed, which was reflected in lower spending; with increased household costs affecting growth in deposits and saving.”
However, there was more positive news when it came to corporate borrowing. Leenders added: “Businesses appear to be weighing up their options before raising finance to fund projects or developments. After a long period of subdued company borrowing, overall growth is starting to stabilise at a modest rate.”
