Consumer credit borrowing exceeds repayments for first time since August
Households borrowed more in consumer credit than they repaid in May for the first time since August, according to Bank of England data published on Tuesday.
Net consumer credit was £280m in May, reversing a trend seen throughout the majority of the pandemic as households reined in spending whilst the economy was shuttered.
The positive consumer credit reading was driven by consumers rushing to spend on goods and services that have been unavailable for long periods due to Covid prevention measures.
Greater use of car dealership finance was in part the cause of the robust net consumer credit figures.
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Martin Beck, senior economic advisor to the EY Item Club, says: “Consumers took advantage of the further relaxation of restrictions and greater opportunities for social consumption.”
The positive consumer credit reading indicates the economy is set for a period of stronger consumer demand, analysts at EY Item Club added.
Households continued to strengthen their savings, albeit at a slower pace than in recent months. Net flow into banks and building societies was £7bn in May, down from £8.9bn in April.
“Though the lifting of remaining restrictions has been postponed until 19 July, the EY Item Club does not expect this to represent much of a hinderance to the rebound in consumer demand” Beck added.
“With many consumers having strengthened their balance sheets markedly during the pandemic, the EY Item Club expects to see rebounds in both spending and demand for credit.”
Mortgage approvals rise despite surging house prices
The Bank’s data shows demand in the UK housing market is still robust despite separate figures today showing a surge in house prices.
Mortgage approvals for house purchases reached 87,500 in May, up from 86,900 in April, albeit much lower than the recent peak of 103,200 in November 2020.
Figures from Nationwide today reveal house prices in the UK have risen 13.4 per cent annually, the highest increase since November 2004.
Beck noted that “housing market activity has cooled relative to the start of this year, but mortgage approvals of 87,500 in May were still well ahead of the 2010-2019 average of 61,000.”
Strong activity in the housing market is still being driven buyers rushing to complete purchases before the stamp duty holiday tapers on 30 June, EY Item Club added.
Read more: House prices: Growth rates surge across UK, with London homes averaging £509,000