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Creditfix LB 03-2017

Consumer Credit Finally Falling

January saw consumer credit fall for the first time in over four years as households cut back on their borrowing. Businesses also reduced their exposure to credit on an annual basis.

According to the latest figures released by industry body UK Finance, unsecured consumer borrowing from major UK banks, including personal loans, overdrafts, and credit cards, was down by 0.2 per cent in the twelve months to January 2018.

The fall represents the first time negative growth has been seen in either the consumer or business sector since July 2013.

A stricter approach towards lending by banks and financial companies encouraged by the Bank of England and the Financial Conduct Authority (FCA) may have had some influence towards the credit reduction. However, further strain on household budgets is also thought to be responsible.

Total personal deposits at the high street banks increased by just 2.2 per cent year on year. This represented a slight improvement on the previous month but was still well below the 3.6 per cent average achieved over the previous two years.

Individual Savings Accounts (ISAs) saw the level of deposits continue to fall for the ninth month running, down by over ?1 billion over the month.

While consumer spending has held up well over the last year despite falling incomes in real terms, the rate of saving has suffered as consumers use monies that would have been kept in reserve to keep up spending levels.

Businesses by and large have been saving rather than spending over the last year according to UK Finance, with only the manufacturing sector increasing borrowing having become more competitive abroad due to the weak pound. Meanwhile, construction and property-related sectors reduced thair exposure to credit.

Companies built up cash reserves with deposits growing 7 per cent over the past 12 months, while borrowing contracted by 1.4 per cent – the sharpest contraction since February 2015.

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