Consumers increased their borrowing in April at the slowest pace since 2014, revealing a reluctance to buy goods on credit amid persistent Brexit uncertainty.
The annual growth rate in unsecured consumer lending dropped to 5.9% from 6.4% in March, as households limited their spending on credit cards and cut back on finance deals to purchase a new car. Not since June 2014 has the rate of borrowing growth been so low, the Bank of England said.
Analysts said borrowers were refusing to buy on plastic while the outcome of Brexit talks remained unclear.
The figures chimed with reports from retailers of falling sales, especially on big ticket items such as furniture. A decline in car sales has also dragged down consumer credit growth. More than 80% of new car sales last year were financed using credit finance.
Lenders have also put the brakes on risky loans in response to the City regulator’s concerns that total unsecured borrowing has grown rapidly in recent years to reach a record high.
The slowdown in unsecured lending contrasts with two years ago when the annual growth rate regularly topped 10%.
Concerns that the Conservative party will elect a new prime minister with a mandate to pursue a no-deal Brexit is also expected to dampen consumer spending over the coming months.
Most economists expect a decision in October to leave the European Union without a deal would severally harm the UK’s trade with its neighbours and reduce growth to zero or trigger a recession.
The Bank of England said the extra amount borrowed by consumers to buy goods and services was £900m in April, “in line with the average since July 2018, but below the £1.5bn average between January 2016 and June 2018”.
A breakdown of the figures showed that net borrowing for other loans and advances, including second mortgages and car loans, increased to £700m, while credit card lending fell slightly to £200m.
Howard Archer, chief economic adviser to the EY Item Club, said: “While consumers have clearly been less affected by Brexit uncertainties than businesses, the overall impression remains that they have become relatively careful in their borrowing amid concerns over the economic outlook.
“Meanwhile, lenders have become more careful about advancing unsecured credit. The first quarter of 2019 saw lenders further reduce the amount of unsecured credit available to households and again tighten lending standards,” he said.
Consumer spending during 2018, driven by high levels of net migration, rising wages and low inflation, accounted for around 80% of GDP growth, helping to offset steep declines in business investment.
The trend for low but stable levels of consumer borrowing growth is expected to persist during 2019, especially after a period when households have run down their savings to record low levels and have little option other than borrowing to sustain their spending.
Figures from the Bank of England show the downward trend dates back to November 2016 when consumer credit growth reached a peak of 10.9%, though it remained above 10% for most of 2017.
A report last year by the Office for National Statistics found that households spent about £900 more on average than they received in income during 2017, pushing their finances into deficit for the first time since the credit boom of the 1980s.
The ONS said the shortfall amounted to nearly £25bn and had helped push Britain’s consumer credit bubble to more than £200bn.
A survey by the Bank of England last month showed that the number of people defaulting on their credit card debts climbed to the highest level since the first half of 2017.
A balance of customers in severe debt calculated by the central bank based on responses from lenders increased to 22.9% in the first quarter from 12.7% in the last quarter of 2018 and -11.2% in the third quarter that year.
