Consumer borrowing returned to a net positive in July, while mortgage lending increased, indicating that household spending is beginning to recover after the lockdown.
Bank of England data, released on Tuesday, showed that an additional £1.2bn of consumer credit was borrowed in July. This followed four months of net repayments as individuals paid off debt during the pandemic-enforced spending halt.
Meanwhile, new mortgage lending hit £2.7bn in July, which was higher than the £2.4bn recorded in June but below the average of £4.2bn in the six months to February 2020.
There was a more dramatic increase in the number of mortgage approvals, which went up to 66,300 from 39,900 in June.
Approvals are now 10 per cent below the February level of 73,700 but more than seven times higher than the trough of 9,300 in May, the Bank of England commentary said.
The increase has been attributed to the government’s stamp duty holiday, which began in July, and the benefit of pent-up demand after the end of the lockdown, when house viewings were banned.
Bank deposits normalised over the period, as consumers stopped hoarding cash due to limited spending opportunities and social isolation measures.
Households’ deposits increased by £7bn in July, down from an increase of £11.7bn in June and below an average of £19.1bn between March and May.
Pre-Covid, household deposits rose by an average of £5bn per month in the six months to February 2020.
“While today’s findings show overall lending levels in the mortgage market remain significantly lower than pre-crisis, there are positive signs of growth,” said Dave Harris, chief executive of equity release lender More2life.
“Month-on-month increases to new mortgage approvals suggest that buyers have been taking advantage of the lending options on offer to help them during the coronavirus crisis – and lenders and advisers have played a crucial part in this.”
While consumer lending showed signs of recovery in July, business borrowing has been muted.
Private sector businesses borrowed £3.1bn in July and repaid £3bn of bank loans – the smallest amount raised since early 2020, and significantly lower than the average £19.2bn raised per month between March and June.
The Bank of England commentary said that borrowing from banks by small- and medium-sized enterprises (SMEs) remained strong, but this was more than offset by repayments of loans by larger companies.
SMEs borrowed an additional £5.3bn in July, which was less than the £18bn borrowed in May but far more than pre-Covid levels.
Before May, the largest amount of net borrowing by SMEs was £600,000, in September 2016.
In contrast, large businesses made a net repayment of £7.7bn of loans in July. This followed net repayments of £13bn in May and £16.8bn in June.
In July there were large repayments from the property, manufacturing, and wholesale and retail industries in particular, the Bank of England said. The annual growth rate of borrowing by all large businesses fell to 3.7 per cent.