The great British credit boom: Bank lending soars in January
BANKS lent more to consumers and businesses in January and mortgage approvals hit a 12-month high, as historically low interest rates continue to fuel the credit boom.
Figures from the British Bankers Association (BBA) showed that total consumer borrowing growth rose to £538m, more than doubling from December’s figure. This was primarily driven by the increase in personal loans and overdrafts, which rose to an eight-month high of £422m.
Howard Archer, chief European and UK economist at IHS Global Insight, said the pick-up in unsecured consumer credit was likely to be a concern to Bank of England Governor Mark Carney.
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“There have been mounting signs that consumers are becoming more cautious in their spending as their purchasing power is increasingly diluted by rising inflation, but the January BBA data suggests that they are still prepared to borrow,” he said.
“January’s rise in unsecured credit will likely be of some concern to the Bank of England. In a speech in mid-January, Governor Mark Carney indicated that the Bank of England will closely monitor consumer dynamics over the coming months.”
Read more: Unsecured consumer credit boom set to continue in first quarter
Meanwhile, bank lending to businesses rose by £3.4bn in January, which was the largest increase since January 2015. However, the BBA observed that “borrowing was largely short term and will probably unwind next month”.
“The suspicion is that businesses will become increasingly cautious in their behaviour (especially investment) over the coming months due to mounting concerns and uncertainty over the economic outlook as the UK’s Brexit process gets underway and consumer spending falters,” said Archer.
Read more: Businesses borrow less from banks due to Brexit fears
Unlike a spike in unsecured consumer credit, which worries economists, businesses are encouraged to borrow. The Bank of England has been keen to ensure that businesses continue to have access to capital, with low interest rates and its “term funding scheme” to help banks lend to the private sector. Banks tightened up lending after the financial crisis which had a detrimental impact on economic recovery, although it created an opportunity for the peer-to-peer lending sector.
Meanwhile, mortgage approvals soared last month, as homeowners take advantage of low interest rates and competitive re-mortgage offers.
At 44,657 in January, mortgage approvals for house purchases were up 18.6 per cent from their August 2016 low, although they were still 2.5 per cent below the January 2016 level.
Gross mortgage borrowing came in at £13.8bn, with re-mortgaging approvals 15.7 per cent higher year on year.
Read more: January mortgage lending hits 9-year high
However, Archer warned that the good times may not continue. “We believe the fundamentals for house buyers will progressively deteriorate during 2017 with consumers’ purchasing power weakening markedly and the labour market likely softening,” he said.
Read more: Safe as houses
