No increase in consumer credit in July

1st September 2021

Outside of mortgage borrowing, consumers borrowed no additional consumer credit in July, according to Bank of England (BOE) figures, with the sum households paid back roughly equivalent to what they were loaned.

The figures compare with an average of £1.2 billion of consumer credit borrowed per month in the two years to February 2020.

Economists had been expecting an increase of around £400 million, up from £300 million in June. The analysis shows that people borrowed an additional £100 million in forms of credit such as car dealership finance and personal loans in July.

Consumers repaid £100 million on net in credit card debt, continuing a trend seen throughout the pandemic as reduced spending during lockdowns meant more people were in a position to pay off debts. The data also shows that household savings grew by £7.1 billion in July, despite interest rates paid on deposits hitting a historic low.

In a typical month before the pandemic, consumers were borrowing £1.2 billion more each month. Credit card borrowing is down 8.1% in a year.

The figure falls well short of the record £27.4 billion deposited in May 2020. Large businesses borrowed £4.5bn from banks in July, the BoE report noted, while small and medium-sized businesses repaid £1.2bn.

Commenting on the BOE data Richard Lane, Director of External Affairs at StepChange, said “The data from the Bank shows that, in July, consumer borrowing was equalled by repayment of debt. In aggregate this perhaps paints a reasonably reassuring, if cautious, picture of the state of household finances. However, it masks the fact that, for some people, borrowing isn’t a discretionary activity, it’s the only way they can afford to put food on the table and keep the lights on.”

“Among our own clients, we continue to see that many of those coming to us are from over-represented groups that have been negatively affected by the pandemic. We remain concerned that as support measures come to a close in the Autumn, financial pressures remain very real for many. The risk is of a two-speed recovery that leaves behind those who have been hardest hit – we strongly urge Government to pay attention to their needs.”

“July saw a small rise in the proportion of home-owner StepChange clients facing increased difficulties, up from 12% of clients in June to 13% in July, alongside a similar increase from 18% to 19% in the proportion of clients with mortgages behind on mortgage payments.”

The debt charity’s independent data saw a small rise in the proportion of StepChange clients who are homeowners facing increased financial difficulties, up from 12% of clients in June to 13% in July. There was a similar increase – from 18% to 19% – in the proportion of clients with mortgages who were behind on payments.

Nearly a third of StepChange’s clients are on Universal Credit, and the charity has warned that a significant proportion will see their difficulties worsen when the temporary £20 a week uplift ends.

The StepChange website had 306,000 visitors in July. The emergency funding page continued to be the single most-visited page, with 20,000 visitors.

More than 13,000 people completed a debt advice session with StepChange in July, a small increase on the previous month.

There was a small decrease in the amount of people citing coronavirus as the reason for their debt, from 10% in June to 8% in July.

Credit cards were the most common type of credit debt among new StepChange clients, and the number of people coming to the charity with credit card debt showed a small increase in July, with 67% of new clients holding at least one credit card debt. Council tax arrears continued to be the most common form of household bill arrears.

Around three in 10 new clients in July had a deficit budget, three in 10 were on Universal Credit, three in five were women, and 57% were under 40.

Sarah Coles, Personal Finance Analyst, Hargreaves Lansdown said “A summer of borrowing and spending failed to materialise in July, and our credit cards continued to gather dust. Credit was curtailed by a triple whammy of a new-found enthusiasm for saving, a bigger cushion of cash to fall back on, and the fact that in many cases it proved difficult to part with our cash.”

“In some cases, spending money proved far harder than planned. Uncertainty over changing rules meant many people felt they couldn’t book an overseas holiday, while lack of availability of accommodation in the UK convinced many to stay home. Meanwhile, a shortage of computer chips meant there weren’t enough new cars to meet demand, putting the brakes on car financing. And the difficulty of getting builders and materials meant fewer loans for home improvements too.”

“Millions of those who were able to splash the cash had their lockdown savings so they didn’t need to borrow. Meanwhile, millions of others chose to save instead: while the amount we put aside in savings fell back slightly, it remained well above pre-pandemic levels.”

Stuart Anderson, Chief Commercial Officer at Target Group said “Whilst the BoE figures imply a relatively positive picture for now – saving high and borrowing low – they don’t necessarily tell the full story. Consumers may be taking a cautious fiscal approach for the time being, by paying off debt whilst we experience record low interest rates and the ever-present threat of inflation; but it also strikes that some are preparing for the aftershocks of the pandemic.”

“With furlough coming to an end shortly, we envisage uncertainty. Many may see their income drop and be faced with financial difficulties. This could lead to banks facing upticks in deposits from people less financially affected by the pandemic, but also supporting vulnerable customers through forbearance, with many coming up against financial difficulties for the first time. Banks will need to ensure they’re ready to support customers wholeheartedly over the coming months and have specially trained staff in place to help manage the situation.”