The boom in consumer borrowing across Britain has eased to the slowest growth rate in nearly three years, according to official figures.
The Bank of England said unsecured consumer credit grew by 8.5% in July, down from 8.8% a month earlier. Although still more than double the rate of annual pay increases, the figures are likely to point towards a slowdown for the British economy.
Threadneedle Street has become increasingly concerned over the rapid increases for personal borrowing on credit cards, bank loans and car finance in recent years, amid a surge in lending to levels unseen since the financial crisis. There have been growing numbers of personal insolvencies and rising reports of money problems to charities such as Citizens Advice and StepChange.
Official figures show British households spent about £900 more on average than they received in income last year, pushing their finances into deficit for the first time since the credit boom of the 1980s.
Coming after the rapid increase in borrowing, the latest snapshot from the Bank could suggest households are starting to curb expenditure beyond their means. It also comes after Threadneedle Street warned high street banks against reckless lending practices, suggesting they may have responded by reining in the availability of credit.
The net amount of new consumer borrowing fell to about £800m in July, from £1.5bn in June, which the Bank said was notably below the average for the past three years. While the growth rate remains high compared with the years following the 2008 financial crisis, the gradual slowing continues a trend seen since late 2016.
Howard Archer, the chief economic adviser to the EY Item Club, said: “July’s data reinforces the impression that consumers are currently relatively cautious in their borrowing while lenders have certainly become warier about advancing unsecured credit.”
Although welcome for the strength of household finances, the slowdown could point towards weaker levels of spending in the economy, paving the way for weaker economic growth.
High street retailers have come under significant pressure from slowing consumer spending since the EU referendum, amid sluggish wage growth and higher levels of inflation.
Peter Tutton, the head of policy at StepChange, said the latest figures could show waning consumer confidence, against a backdrop of 3.4 million people struggling with serious problem debt. “With continuing economic uncertainty ahead, this lack of confidence may continue,” he said.
