Yahoo Finance UK consumer credit surges to £700m in October
UK consumer spending rose to £700m (£934m) in October, up from £300m in September, as the country continued to recover from the coronavirus pandemic and more households were willing to borrow.
It came as the effective rate on new personal loans jumped to 6.27% last month, the highest since March 2020.
According to the latest data from the Bank of England (BoE) on Monday, net borrowing of mortgage debt by individuals amounted to £1.6bn over the period, down from £9.3bn in September, and the lowest since July.
Mortgage approvals for house purchase fell further to 67,200 in October from 71,900 the month before, close to the 12-month average up to February 2020 of 66,700.
The slump was thanks to the end of the government’s stamp duty holiday. September was the final month buyers could benefit from the scheme, a tax break designed to prop up the housing market and help consumers as the economy contracted during the COVID-19 lockdowns.
The holiday was extended from 31 March 2021 to the end of June and once more, tapering from June to the end of September, as people rushed to market.
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The net borrowing in October was £4.6bn below the 12-month average to June 2021, when the full stamp duty holiday was in effect. Gross lending fell sharply to £19.3bn in October, from £30.7bn in September. Gross repayments fell to £18.2bn from £20.6bn in September.
Meanwhile, households’ net flow into deposit accounts fell in October to £5.5bn as the effective interest rate paid on individuals’ new time deposits with banks and building societies rose to 0.36% during the period.
In addition, households deposited £900m into national savings and investment (NS&I) accounts in October, which are not captured within household deposits but can act as a substitute for them.
The data also showed that large businesses borrowed £2bn in loans from banks last month, whilst small and medium sized businesses (SMEs) repaid £1.6bn.
Private non-financial companies (PNFCs) raised £300m in net finance from capital markets, compared to an average net issuance of £700m in the 12 months to September 2021.
Read more: UK house price rises sharply as stamp duty holiday ends
“The £0.7bn rise in consumer credit in October adds to evidence that households’ willingness to borrow picked up a bit at the start of the fourth quarter,” Bethany Beckett at Capital Economics said.
“While that could offer some reassurance to retailers as they enter the crucial run-up to Christmas, it seems a bit academic now given the growing risk that the Omicron variant stops the recovery in spending in its tracks.
“That adds to the downside risks for our GDP forecast, which already pointed to fairly weak growth in the coming months.”
