In­ter­est rate hike sees house­holds tighten belts

Birmingham Post - - BUSINESS - Vicky Shaw Spe­cial Cor­re­spon­dent

HOUSE­HOLDS are show­ing signs of in­creased cau­tion over their bor­row­ing fol­low­ing Au­gust’s hike in in­ter­est rates, as an­nual growth in con­sumer credit weak­ened to its low­est lev­els in three years.

Bor­row­ing from sources such as credit cards, per­sonal loans and over­drafts in­creased by 8.1 per cent an­nu­ally in Au­gust, down from 8.5 per cent growth in July, Bank of Eng­land fig­ures show.

It was the low­est an­nual growth since an eight per cent in­crease in Au­gust 2015.

The Bank said that, within the 8.1 per cent an­nual growth in con­sumer credit shown in the lat­est fig­ures, growth in per­sonal loans and over­drafts was at its weak­est since De­cem­ber 2014, while growth in credit card bor­row­ing has re­mained “broadly sta­ble” for the past 18 months.

The Bank said an­nual growth in con­sumer credit is now “well below” a peak of 10.9 per cent seen in Novem­ber 2016.

The Bank of Eng­land base rate was in­creased from 0.5 per cent to 0.75 per cent in early Au­gust, push­ing up costs for some bor­row­ers.

Howard Archer, chief eco­nomic ad­viser at EY ITEM Club, said: “It may well be that Au­gust’s rise in in­ter­est rates fu­elled con­sumer cau­tion over bor­row­ing.” He con­tin­ued: “The re­cent im­pres­sion has been that con­sumers have be­come rel­a­tively cau­tious in their bor­row­ing while lenders have cer­tainly be­come warier about ad­vanc­ing un­se­cured credit and tight­ened their lend­ing stan­dards.”

Re­cent fig­ures from Money­facts. co.uk sug­gest con­di­tions for bor­row­ers are get­ting tougher. It found that the num­ber of bal­ance trans­fer credit card deals on the mar­ket which have an in­tro­duc­tory zero-in­ter­est pe­riod has fallen to its low­est level since Money­facts’ records started in 2006.

This could make life harder for credit card bor­row­ers who rely on shift­ing their debt from one in­ter­est­free credit card deal to an­other.

Peter Tut­ton, head of pol­icy at StepChange Debt Char­ity, said: “With con­sumer con­fi­dence slip­ping over the sum­mer against a back­drop of un­cer­tainty caused by Brexit, it’s per­haps not sur­pris­ing that credit growth has con­tin­ued its down­ward trend.”

But he con­tin­ued: “We must keep an eye out for is­sues aris­ing out of emer­gency bor­row­ing to en­sure lend­ing re­mains af­ford­able and sus­tain­able in the long term.”

The Bank’s Money and Credit re­port also showed that 66,440 mort­gage ap­provals were made to home buy­ers in Au­gust – the high­est fig­ure in seven months. The num­ber of ap­provals for re­mort­gag­ing in­creased to 53,125 in Au­gust – the high­est fig­ure since Novem­ber 2017.

But Mr Archer said: “Con­sumer cau­tion over mak­ing house pur­chases may well be mag­ni­fied in the near term at least by cur­rent height­ened un­cer­tain­ties over Brexit.”

> An­nual growth in con­sumer credit is well below a peak of 10.9% in 2016

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