Consumer borrowing on credit cards rose to its highest level in more than a year in November, bringing all forms of unsecured household credit to $ 1.2 billion, according to the latest data from the Bank of England.
The increase in reliance on credit and credit cards bumped the city’s forecast of £ 0.8bn and outperformed the six-month average of £ 0.6bn.
Analysts said much of the increase reflected a more confident borrowing pattern prior to the pandemic, but warned that many low-income households have become more dependent on credit to meet inflationary pressures on their finances from rising utility bills and the higher cost of weekly shopping.
Households also reduced the amount of money on deposit accounts in November from an average of £ 11.2 billion in the last 12 months to £ 4.5 billion.
The sharp decline in savings growth was seen as helping the trend of some consumers to be more confident and spend a higher percentage of their income, while others with lower incomes reduced savings to cover higher bills.
Martin Beck, the EY Item Club’s senior economic advisor, said that while some households are scaling back on saving and increasing borrowing to cope with budget constraints, this also suggests consumer sentiment becoming more optimistic.
The Omicron coronavirus variant threat would likely reverse the trend of higher borrowing and lower saving in December as households responded to mounting economic uncertainty, said Samuel Tombs, UK chief economist at consulting firm Pantheon Macroeconomics.
“The savings will likely stay elevated at least through March, when Omicron should be on the decline,” he said.
“Meanwhile, the prospect of inflation rising to around 6% in the spring suggests that households will save much less this year to maintain their current spending levels, given the prospect of falling real disposable income.”
He added that a consumer boom, fueled by a rapid reduction in pandemic-related savings, “remains very unlikely,” while much of the money will be needed to offset higher prices.
Bank of England mortgage loan approval numbers in November showed a sixth straight month decline to levels near pre-pandemic average of 2015-19.
The decline to 66,400 permits per month is expected to become the norm for the remainder of this year, Tombs said, despite higher demand from buyers in November, which propelled house price inflation 10% higher, according to the RICS housing market survey.
“Higher mortgage rates are likely to dampen the housing market,” he said. “The average listing rate for a two-year fixed-rate mortgage with a lending ratio of 75% rose from 1.30% in October to 1.52% in November and is expected to increase to around 1.7% by March. once the full impact of the recent rise in banks’ wholesale financing costs has been seen. “
The Bank of England raised its base rate from 0.1% to 0.25% last month and investors are betting it will climb to at least 0.75% by the end of this year.
Threadneedle Street officials appear to have put aside concerns that the UK’s economic recovery slowed from three pandemic lockdowns in the second half of last year as Brexit trade losses and global shortages of goods affected consumer spending.
Central bank policymakers have stressed that they must meet rising prices with higher interest rates to dampen demand.