Borrowing falls as consumers raid savings
Consumer borrowing fell in May, but Brits raided their savings accounts in order to keep up with the rising cost of living, new data shows.
According to the latest Bank of England money and credit statistics, net borrowing on consumer credit by individuals decreased from £1.5bn to £1.1bn in May. However, households withdrew a record £4.6bn from their bank and building society accounts.
The combined net flow of both household deposits with banks and building societies and National Savings and Investment accounts amounted to -£3.8bn last month, which the Bank of England said was a “significant fall from £5.3bn in April.”
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Economists and financial analysts noted that consumer borrowing and savings trends paint a worrying picture of the nation’s finances amid a prolonged period of high inflation, high energy prices, and the rising cost of basic household goods.
“Today’s money and credit statistics from the Bank of England reveal that UK household deposits in savings fell by £4.6bn in May as customers likely used savings to stretch their finances and cover rising costs,” said Tasha Chouhan, UK and Ireland banking director at Tink.
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Chouhan urged consumers to make use of open banking tools such as automatic budgeting and savings insights, to stay on top of their spending and saving as economic uncertainty continues.
“Consumers are facing the financial double whammy of high costs for both goods and borrowing as both May and June saw inflation remain at historic levels,” added Paul Heywood, chief data and analytics officer at Equifax UK.
“The Bank’s figures show that the fiscal policy of base rate rises has depressed consumer borrowing, but there is likely to be more pain on the horizon as rates are predicted to trend upwards over the summer.”
Heywood added that despite mortgage approvals increasing, there remains a serious concern that the UK is headed for a ‘mortgage shock’ as homeowners come to the end of their pre-inflation deals.
“While consumers in the UK have done remarkably well to manage their finances thus far, we are seeing signs of emerging stress,” he said.
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