Consumer credit grew by 7.7% in February

Latest Bank of England (BoE) data has shown that consumer credit grew at 7.7 percent in February 2023 as consumers borrowed an additional £1.4 billion in consumer credit, of which £0.8 billion was through other forms of consumer credit (such as car dealership finance and personal loans) compared with £1.7 billion borrowed during January. This was split between £0.6 billion of borrowing on credit cards and £0.8 billion of borrowing through other forms of consumer credit.

Credit card borrowing fell to £0.6 billion from £1.1 billion in January 2023, while still high it was a fall of 13.5 percent to 13.1 percent, with outstanding balances for consumer credit now standing at £210.9 billion. 

The data also showed that number of mortgage approvals made in February hit 43,536, this is the first time this has increased since August 2022, having fallen for five months in a row as of January this year. The value of these approvals also went up on a monthly basis, from £8.6 billion to £9.7 billion.

Remortgages, approvals also increased from 25,364 in January, and at a value of £5.2bn, to 28,093 at a value of £5.9bn in February.

Commenting on the data, Jane Tully, Director of External Affairs at the Money Advice Trust said  “This further rise in consumer credit borrowing is a sign of the strain households are under as costs continue to rise. With council tax set to increase in April, and energy and food costs remaining high, people already struggling are running out of options.”

 “Many are turning to credit to plug gaps in household budgets that simply won’t stretch to cover the essentials. And with interest rates rising again, this could be adding more pressure later down the line.”

 Simon Webb, Managing Director of capital markets and finance at LiveMore, said “Net borrowing was £5.9 billion last September and has decreased every month for the past six months down to £0.7bn in February. This is reflective of the uncertain economic climate, inflationary pressures and rise in mortgage rates with people waiting to see a clearer picture.”

“On the positive side mortgage approvals are up, which is a good sign for future mortgage lending so I would expect to see lending figures increase in the coming months.”

Andrew Fisher, Chief Growth Officer at Freedom Finance said“Despite interest rates increasing across the consumer sector we are still seeing strong demand from customers for credit. Over the past few months, there have been large fluctuations in demand for the various types of credit, in particular, credit card spending has been volatile.”

“Customers are still getting to grips with a radically different credit landscape to this time last year, and many will need to rethink how they finance home improvements, holidays and even day-to-day spending as low-rate mortgages and long interest-free periods on credit cards have all but disappeared. We have seen a wider range of customers than ever coming to our platform in recent months searching for both unsecured and secured credit options as they adapt to the new financial environment.     

“The benefit for those who shop around on Freedom Finance’s credit marketplace is that would-be borrowers are using technologies that means they can find the best products and rates available to them without fear of being rejected and damaging their credit score.”

Paul Heywood, Chief Data & Analytics Officer at Equifax UK, said “Today’s Bank of England Money and Credit data shows that despite the winter blues consumer borrowing rose for the second month this year. This rise came amidst a tough inflationary period, with rates remaining high and placing significant cost pressures on essential goods and services for both consumers and businesses.”

“While approvals may have increased, high-borrowing costs continued to depress the mortgage market last month, pushing borrowing levels to their lowest since April 2016. Elsewhere, despite the recent rate rises making offerings more attractive, savings have once again come under threat as consumers look to make ends meet.”

“Despite the recent financial turmoil, the UK credit sector is well placed to weather the storm; though it has done little to improve the nation’s spirits in March. While it is unlikely to be reassuring in the short term, as we head into spring there is hope that last week’s base rate increase by the Bank of England will arrest the rate of inflation and bring some stability to the nation’s finances.”