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Unsecured borrowing rises but business lending falls again


Britain’s reliance on consumer borrowing to drive the recovery was laid bare on Monday by figures from the Bank of England showing a 6.4% jump over the year to October.

The rise represented the fastest annual growth in unsecured consumer credit since 2006 and follows a series of reports forecasting a delay in interest rate rises until at least the autumn next year.

Without the threat of higher interest costs in the near future, consumers have made the most of fierce competition among lenders and a price war on the high street to increase spending on credit cards and loans. In particular, the continuing popularity of new cars is tied to enticing cut price loan deals offered by dealerships and manufacturers.

Maeve Johnston, UK economist at Capital Economics, said: “The latest figures provided an encouraging sign that consumers feel more confident to borrow. Indeed, while annual growth in consumer credit remains weak by pre-crisis standards, it has continued to gradually improve.”

Personal loans and overdrafts rose by £700m in October while credit card lending increased by £400m, the central bank’s figures showed.

“So total consumer credit rose by £1.1bn, a touch more than the £0.9bn increase in September. We expect further sustainable rises in consumer credit over the coming months,” she said.

Net borrowing remains at low levels compared with the boom years, though much of the decline relates to older homeowners paying down mortgage debt rather than across-the-board restraint in borrowing.

Howard Archer, chief UK economist at IHS Global Insight, warned that rising consumer credit meant that more households would be vulnerable to financial stress following an interest rate increase.

He said: “With debt levels relatively high, there is the concern that even a small rise in interest rates during 2015 could cause problems for a significant number of people. However, it currently looks unlikely that the Bank of England will raise interest rates before the latter months of the year. Furthermore, the Bank has indicated that still high consumer debt levels are an important factor why it will only raise interest rates gradually over the longer term,” he added.

The Bank figures also showed a further slowdown in mortgage lending and a second successive, and deeper, dip in net bank lending to business outside the financial sector.

Net lending secured on dwellings increased by £1.5bn in October, less than the monthly rise of £1.7bn in September and continuing a trend since the spring of declining appetite for homebuying.

Net lending to businesses fell by £1.9bn in October after a drop of £813m in September. These figures will be seen as a disappointing turnaround by ministers, who were encouraged by increases of £877m in August and £1.2bn in July.

Source: The Guardian

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