UK consumers and businesses shrink their borrowing ahead of Brexit headwinds
CONSUMER and business borrowing has taken a dip in the run up to Brexit negotiations, with both households and companies set for further bumps in the road over the next few months, economists have warned.
Figures released by the Bank of England on Wednesday morning showed that unsecured consumer borrowing dropped to its second lowest level in eight months in February, to £1.44bn – reversing January’s upbeat comeback from December’s 19-month low of £1.01bn.
“February’s unsecured credit data point to a recent modest overall slowdown in the underlying trend,” said IHS Markit’s chief European and UK economist Howard Archer.
“Until recently at least, relatively confident consumers have been generally keen to take advantage of low interest rates to borrow.
“Consumers are becoming more cautious as their purchasing power is increasingly diluted by rising inflation along with muted earnings growth.”
Archer warned that with inflation continuing to rise on the back of a weaker pound and companies increasingly looking to hold down pay to limit their total costs, households will come under increasing pressure.
Meanwhile, net bank lending to businesses also declined last month, falling by £1.8bn. This was another reversal of January’s trend, when it increased to £3.6bn – the largest rise in two years.
“The overall fall in net bank lending in February fuels suspicion that businesses will become increasingly cautious in their behaviour, especially investment, over the coming months… as difficult negotiations with the EU get underway over Brexit following today’s triggering of Article 50 and as softer consumer spending weighs down on the economy,” said Archer.
Conversely, bank lending to SMEs rose in February by £606m, easing concerns that high-street banks may have become less prepared to finance smaller businesses in reaction to the wider economic uncertainty.
The Bank of England also unveiled that mortgage approvals for house purchases dipped to 68,315 in February – well below the long-term monthly average of 82,044.
“It looks inevitable that the fundamentals for consumers and house buyers will weaken markedly further over the coming months,” Archer said.