UK CONSUMER credit grew at its fastest rate in 11 years in November, but bank lending to businesses fell.
Data released by the Bank of England on Wednesday showed that unsecured consumer borrowing amounted to £1.9bn in November, its highest level since March 2005 – comfortably exceeding analysts’ forecasts. This was up from £1.7bn in October and a marked 33.2 per cent increase from £1.4bn in November 2015.
“It is notable that consumers were prepared to borrow strongly in November even though consumer confidence dipped appreciably during the month according to the GfK survey,” said Howard Archer, chief European and UK economist at research firm IHS Markit. “This suggests that consumers are borrowing to take advantage of very low interest rates.”
The UK economy has fared better than many expected in the wake of the Brexit vote, with historically low interest rates fuelling the credit boom. However, with above-target inflation expected later this year, consumers may start to feel the pinch.
The rise in consumer borrowing has provided opportunities for peer-to-peer lenders. PwC’s annual consumer credit confidence survey, released last November, found that P2P has seen the most growth of any unsecured lending product over the past five years.
However, while consumer borrowing soared, bank lending to non-financial businesses fell by £767bn in November, compared to a £3.2bn increase the previous month.
The British Bankers Association attributed November’s decline to the unwinding of October’s short-term borrowing.
“Lower demand for finance may reflect companies reducing investment plans and preferring to use internal funds rather than borrowing,” said the trade body.
However, lending to SMEs edged up by £63m in November, following a drop of £214m in October and an increase of £910m in September.
“The drop in bank lending to businesses in November fuels concern that businesses will become increasingly cautious in their behaviour – especially investment – over the coming months due to heightened uncertainty as the UK’s Brexit process gets underway,” said Archer.
“We suspect that business caution over investment, employment and borrowing will become more pronounced in 2017 when the government triggers Article 50 of the Lisbon Treaty. This will bring likely very difficult negotiations between the United Kingdom and the European Union increasingly to the fore.”