UK consumer credit growth fastest since 2019, mortgage approvals plummet

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UK consumer borrowing rose the fastest in more than three years in June, suggesting households are relying more on credit amid the cost of living crisis and mortgage approvals declined more than expected as rising interest rates weighed on the property market.

Individuals borrowed a further £1.8bn in consumer credit in June, following £0.9bn of borrowing in May, the Bank of England reported on Friday. This was well above economists’ forecast of £1.0bn.

Additional consumer credit borrowing in June was split between £1.0bn on credit cards and £0.8bn via other forms of consumer credit.

Consumer credit rose 6.5% on an annual basis, the highest rate since May 2019. The 12.5% ​​increase in credit card borrowing was the largest since November 2005.

By increasing their borrowing and reducing their saving, households could probably only mitigate some of the downward impact on their real purchasing power of higher inflation, said Nicholas Farr, an economist at Capital Economics. .

While inflation and interest rates only continue to rise, the outright decline in consumer spending will soon tip economy in recession, added the economist.

Home purchase approvals, an indicator of future borrowing, fell to 63,700 in June from 65,700 in May. The expected level was 65,000.

Net mortgage borrowing by individuals fell to £5.3bn from £8.0bn the previous month.

Data showed that small and medium-sized businesses repaid £0.4bn of bank loans in June, more than the £0.2bn repaid in May and the 15th consecutive month of net repayments.

Meanwhile, large non-financial corporations borrowed £1.3bn in bank loans in June, compared with £1.6bn repaid in May.

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