New analysis by EY has forecasted that demand for consumer credit will grow by just 1.6 per cent this year, despite the recent rise in incomes. The research found mortgage lending is also expected to increase at its slowest rate in eight years, amid uncertainty about Brexit and ongoing concerns over affordability Whilst Business lending is predicted to grow by only 1.3 per cent in 2019, impacting on GDP growth.

The research found that there is limited relief for both consumers and the Bank of England as consumer price inflation rose less than expected in April but was nevertheless at a 2019-high of 2.1%. This still puts further pressure on consumer purchasing power following a falling back in earnings growth in March. It also takes consumer price inflation marginally back above the Bank of England’s 2.0% target rate, although it is unlikely to prompt the Monetary Policy Committee (MPC) into hiking interest rates in the near term.The analysis also suggested a recent relapse in consumer purchasing power is a blow to growth hopes. Consumers have been particularly resilient as improved purchasing power has allowed them to largely brush off any Brexit concerns and keep spending at a reasonable rate.  However, annual earnings growth dipped to 3.2% in the three months to March from 3.5% in the three months to February. Real earnings growth slipped to 1.3% from 1.6% (which had been the best rate since mid-2016).

Howard Archer, Chief Economic advisor to the EY ITEM Club, said “Consumer price inflation rose to a four-month high of 2.1% in April from 1.9% in both March and February, and a 25-month low of 1.8% in January. Inflation had previously come down to 1.8% in January from 2.1% in December and a six-month high of 2.7% in August. Inflation had peaked at 3.1% in November 2017.”

“At 2.1% in April, consumer price inflation moved just above the Bank of England’s 2.0% target rate after three months of marginal sub-target inflation. Upward pressure on inflation in April came from higher energy prices as Ofgem’s increase in the energy price came into effect. Higher fuel prices also had an impact while there was also a temporary upward impact from the later Easter this year – this saw air fares rise some 26% month-on-month in April.

“Consequently, the year-on-year increase in utility prices rose to 3.4% in April from 1.2% in March. The annual increase in transport prices climbed to 4.7% from 3.3%.

“The rise in inflation was limited by lower recreation and culture prices – primarily due to reduced pressures from games, toys and hobbies (especially computer games). There was also a downward impact from clothing and footwear prices.”