U.K. Consumers Scale Back Borrowing as Outlook Weakens

  • Households increase borrowing at slowest pace since May 2015
  • Pound falls as data cast doubt over outlook for spending

British households reined in their borrowing in December, casting further doubt over the strength of consumer spending this year.

Unsecured lending rose by 1 billion pounds ($1.2 billion), the least since May 2015 and well below the expectations of economists. On an annual basis, credit growth slowed to 10.6 percent from 10.8 percent in November, the Bank of England figures Tuesday showed. The data came as GfK said consumers remain “gloomy” and worried about the outlook for the economy.

Debt has underpinned the economy since the Brexit vote, with household spending driving stronger-than-forecast growth in the second half of 2016. An abrupt slowdown in borrowing could hit the mainstay of the economy at a time when incomes are coming under pressure from accelerating inflation.

The pound fell following the data and was at $1.2428 as of 11 a.m. London time, down 0.5 percent on the day.

The drop-off in demand for loans came in a month that saw retail sales fall at their fastest pace in almost five years. Further signs of consumer caution emerged Tuesday in a survey by GfK, which cited “stubborn concerns” about the wider economy. Measures of household-sentiment remained below zero in January and consumers’ appetite for making major purchases declined.

“It looks inevitable that the fundamentals for consumers will progressively weaken over the coming months,” said Howard Archer, an economist at IHS Markit in London.

The figures may come as a relief to BOE Governor Mark Carney, who has signaled officials were becoming concerned about the pace of borrowing. The ratio of household debt to disposable income has been picking up and stood at 143 percent in the third quarter, well above that of the U.S. and the euro area.

Cheap borrowing costs partly explain the recent strength of credit. That’s also underpinned demand for home loans, though the Brexit vote and a tax hike on investment properties that took effect in April has inflicted a toll on the London housing market. Mortgage approvals climbed to 67,898 in December, less than forecast and below the levels seen a year earlier.

The increase in consumer credit was well below the 1.6 billion-pound average of the previous six months and half that seen in November. It grew 0.5 percent on the month, the slowest pace since June 2014. Credit-card lending gained just 0.3 percent.

Carney has said he expects growth to lose momentum this year, and cracks in Britain’s Brexit boom may already be appearing with retail sales plunging almost 2 percent in December. Restaurant and hotel owner Whitbread Plc warned last week about the potential impact of accelerating inflation on consumers.

Lending to non-financial firms fell by 2.1 billion pounds in December, the BOE said. Overseas investors sold a net 2.97 billion pounds of gilts, the first net sales since July.

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