Consumers cut back on borrowing

New Money & Credit figures released by the Bank of England show Latest Bank of England data has found that consumers have reduced their borrowing in February due to the uncertain economy, with credit card borrowing falling from £800 million to £500 million.

Other forms of consumer lending, such as personal loans and car finance, also decreased with the data showing a drop in the annual growth rate for credit cards and consumer credit from 11.9% to 7.3%.

The data also showed that Individuals borrowed £1.5 billion of mortgage debt in February, compared to £1.1 billion of net repayments in January. Net consumer credit borrowing decreased to £1.4 billion in February, from £1.8 billion in January though it was still 8.7% higher than a year earlier.

Adam Butler, Public Policy Manager at StepChange Debt Charity, said “Caution is needed in interpreting what levels of borrowing mean. While for some, borrowing may indicate rising confidence, for others it will be an emergency response to being unable to make ends meet. With 22 million people earlier this year saying they expect their finances to get worse over the next twelve months, there’s a real risk that rising borrowing equates to a worsening of the debt situation for some households.

“As we head towards a General Election later this year, we need all political parties to commit to addressing the underlying drivers of problem debt – such as the gap between many people’s incomes, and their ability to cover their basic essential expenditure. In the meantime, anyone worried about their finances or using credit to make ends meet should explore the help available from organisations like StepChange, to help reduce the risk of worsening their position through further borrowing.”

Susannah Streeter, Head of Money and Markets from Hargreaves Lansdown said “This snapshot gives further hope that the pernicious effects of high interest rates on the economy are beginning to lighten, with mortgage approvals being sent to a 17-month high in February. Expectations have shifted higher again that the recession is in the rear-view mirror, given that homebuyers clearly feel more confident, which is likely to play out in spending elsewhere in the economy. The flow of money into instant access deposits continues, indicating less willingness to save for the longer-term and a keenness to have funds on tap to splash the cash.

“However, although the light at the end of the tunnel of painfully high borrowing costs is shining that bit brighter, there is still a dark space to crawl through before companies and consumers feel significantly more financially secure. So growth is likely to remain highly sluggish in the months to come, with caution set to reign until interest rates start to be cut in the second half of the year.”

Paul Heywood, Chief Data & Analytics Officer at Equifax said “After a rebound in mortgage approvals and consumer borrowing in January, today’s Bank of England figures paint a more subdued picture, with net consumer credit borrowing falling to £1.4 billion, as the UK economy weathered a damp February.

“However, while not reflected in today’s figures, the recent fall in mortgage rates will be welcomed by consumers, who have endured more than two years of rising rates with average repayments on new lending up 60% since January 2022*. This trend reflects the resilience of the mortgage lending sector headed into the second quarter of the year, as the entire UK credit sector waits expectantly for base rate cuts.”