UK borrowing rises at fastest rate in more than a decade

UK

British consumers borrowed more than expected in May to buy homes and fund other purchases in a sign of confidence before last week’s shock decision to leave the EU.

The amount of credit extended to borrowers, which includes credit cards, personal loans and overdrafts, rose by 9.9% compared with a year earlier. This was the fastest annual rate in more than a decade and up from 9.6% in April. Over the month consumer credit rose by about £200m to £1.5bn in May.

UK lenders approved 67,042 mortgages for house purchase last month, up from 66,205 in April, according to figures published by the Bank of England. Economists had forecast a drop in approvals to 65,250.

The figures suggest the appetite among British consumers for borrowing money – and the willingness of banks to lend – was strong as the 23 June referendum on Britain’s membership of the EU drew closer.

Economists warned, however, that Britain’s decision to leave the EU would weigh on lending in the coming months amid uncertainty over the country’s economic and political future.

Howard Archer, chief UK economist at IHS Global Insight, said: “It is very possible that heightened uncertainty and concerns following the Brexit vote will markedly rein in consumers’ willingness to borrow. Banks may also become more wary about unsecured lending to households.”

The Bank of England data showed net borrowing on credit cards rose by £418m over the month in May, and outstanding debt on cards is now £1.3bn more than at the beginning of 2016.

Consumers’ appetite for borrowing on plastic has picked up markedly since the months after the financial crisis, when borrowing slumped and on some occasions repayments outstripped new debt.

The figures, published exactly 50 years after the first credit card was issued in the UK, are likely to concern debt charities.

Mike O’Connor, chief executive of StepChange Debt Charity, said: “Although credit cards can be a cost-effective way to borrow, for many people they have become very expensive, long-term debts.”

He added: “The average credit card debt we see is now at £8,403, about half our clients’ average annual take-home pay, and there is a clear need for change.”

Despite the rise in May, mortgage approvals were still at their second lowest level since May 2015.

Approvals were above 70,000 in every month during the first quarter, partly as buyers rushed through purchases to beat a rise in stamp duty from April on buy-to-let properties and second homes.

In the weeks leading up to the referendum the International Monetary Fund warned that a vote to leave the EU could trigger a UK housing market crash.

Housebuilders suffered sharp falls in their share prices after the decision to leave was announced on Friday, with fears that a broader economic slowdown and loss of consumer confidence would weigh on the market.

Archer said: “Housing market activity and prices now look to be at very serious risk of an extended, marked downturn following the UK’s vote to leave the EU.

“We suspect that house prices could fall by 5% over the second half of 2016 and there could well be another 5-7% drop in 2017.”

Lending to UK business outside the financial sector rebounded sharply in May, increasing by £2.8bn compared with a £176m drop in April.

However, fears are mounting that investment by companies will start to slow in the coming months, as businesses delay spending amid heightened economic uncertainty.

Fitch said on Wednesday that the UK would see a “large investment shock post-Brexit”. The ratings agency forecast a 5% drop in investment in 2017 and said that by 2018, investment would be 15% lower than it was previously expecting.

Powered by Guardian.co.ukThis article was written by Angela Monaghan and Hilary Osborne, for theguardian.com on Wednesday 29th June 2016 13.01 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010

 

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