Consumer credit card borrowing hit its highest level in more than a year in November, pushing all forms of unsecured household credit to £ 1.2 billion, according to the Bank’s latest data from England.
The increase in reliance on loans and credit cards has exceeded the city’s forecast of an increase of £ 0.8bn and topped the previous six-month average of £ 0.6bn.
Analysts said much of the increase reflected a more confident, pre-pandemic borrowing model, but warned that many low-income households had become more reliant on loans to deal with inflationary pressure on their finances due to rising utility bills and the higher cost of shopping per week.
Households also reduced the amount of money set aside in deposit accounts to £ 4.5bn in November, from an average of £ 11.2bn in the previous 12 months.
The dramatic reduction in savings growth was seen to support the tendency for some consumers to be more confident and to spend a greater proportion of their income, while others with low income reduced their savings to cover expenses. higher bills.
Martin Beck, chief economic adviser to the EY Item Club, said that while some households have reduced their savings and increased borrowing to cope with pressure on their finances, “this also seems to indicate a more optimistic state of mind. of consumers “.
The threat of the Omicron coronavirus variant would likely reverse the trends of rising borrowing and falling savings in December as households react to growing economic uncertainty, said Samuel Tombs, Britain’s chief economist at the UK. Pantheon Macroeconomics consulting firm.
“Savings are likely to remain high at least until March, when Omicron is expected to be on the decline,” he said.
“In the meantime, the outlook for inflation at around 6% in the spring suggests that households will be saving significantly less this year to maintain their current level of spending, given the outlook for declining real disposable income.”
He added that a consumer boom driven by rapidly shrinking pandemic-related savings “continues to seem highly unlikely” when much of the money is needed to offset rising prices.
Bank of England mortgage approval figures showed a drop for the sixth consecutive month in November to near their pre-pandemic average of 2015-19.
The drop to 66,400 approvals per month is expected to become the norm for the remainder of the year, Tombs said, despite higher levels of buyer inquiries in November, according to the RICS residential market survey, which found increase house price inflation by 10%.
“Rising mortgage rates look set to dampen the housing market,” he said. “The average quoted rate for a two-year fixed-rate mortgage, with a loan-to-value ratio of 75%, jumped to 1.52% in November, from 1.30% in October, and will likely increase to around 1%. , 7% in March, once the full impact of the recent increase in banks’ wholesale funding costs is seen.
The Bank of England raised its key rate last month from 0.1% to 0.25% and investors are betting it will reach at least 0.75% by the end of this year.
Threadneedle Street officials appear to have put aside concerns that Britain’s economic recovery after three pandemic-related lockdowns slowed in the second half of last year as Brexit trade loss and shortages global goods have affected consumer spending.
Central bank policymakers stressed that they had to deal with rising prices with higher interest rates to dampen demand.