Consumer lending rises to five-year high levels

Consumer lending

The rise was fuelled by credit card borrowing as consumers charged $2.5 billion last month

Lending to consumers in Britain swelled in February, the most in five years, the Bank of England (BoE) announced Tuesday.

The rise was fuelled by credit card borrowing as consumers charged 1.9 billion pounds ($2.5 billion) last month. Of that number, 1.5 billion pounds ($2 billion) was new lending on credit cards. That’s the largest rise since the BoE began keeping records in 1993.

Analysts said the surge of borrowing could be a sign that the cost of living is putting the squeeze on households.

Robert Alster, from Close Brothers Asset Management, said: Strong credit card lending may signal that many households have already exhausted pandemic savings and are sticking spending on plastic.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said consumer credit growth likely reflects households attempting to maintain their consumption at a time when real disposable income is falling sharply, rather than them going on a spending spree.

As home prices continued to rise, the BoE data revealed mortgage approvals and the total value of secured lending was weaker than expected. Mortgage lenders approved 70,993 mortgages last month, down from 73,841 in January.

Still, the central bank of the United Kingdom said the February numbers were well above the 12-month pre-pandemic average up to February 2020 of 66,700.

The actual interest rate paid on new mortgages rose by 1 basis point to 1.59% in February.

There was some good news for consumers.

The BoE reported the effective interest rate paid on individuals’ deposits with banks increased by 10 basis points to 0.77%.

On the corporate side, large companies borrowing from banks rose to 4 billion pounds ($5.3 billion) in February. Small and medium-sized businesses (SMBs) repaid 0.5 billion pounds ($657 million).

During the same period, private non-financial companies redeemed 4.1 billion ($5.4 billion) in net finance from capital markets.

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