Unsecured lending slowed down further in August, in a sign UK consumers might be tapping on the brakes amid growing concern from regulators about the dangers of spiralling personal borrowing.
UK Finance, which amalgamates previous trade associations including the British Bankers Association and the Council of Mortgage Lenders, presented data from high street banks on Tuesday showing overall consumer credit rose at an annual rate of 1.5 per cent in the month, down from 1.9 per cent in July and the slowest growth rate since at least April.
The month’s increase in credit card borrowing was the weakest since December 2016.
The data comes after the Bank of England’s Financial Policy Committee warned on Monday that UK banks were “underestimating” their potential losses on unsecured loans if the UK experiences another recession.
Broader data, collected by the Bank of England, showed unsecured consumer lending growing at an annual rate of 9.8 per cent in July, down from an 11 per cent growth rate in late 2016 but still well ahead of the rate of households’ income growth.
Howard Archer of the EY Item Club said the new data suggesting a further slowdown would be “warmly welcomed” by the Bank.
Labour’s shadow Chancellor, John McDonnell, earlier this week, announced plans by his party to cap the amount of interest an individual could be required to repay on a credit card at the level of the original sum borrowed.
British GDP growth has been mainly propped up by household spending since the June 2016 Brexit vote, as investment and net exports have made little contribution.
While lower consumer borrowing would help ease regulators’ financial stability concerns, it may also slow the wider economy.
However, UK Finance also reported on Monday that the number of mortgage approvals in August was 41,807, up from 41,644 in the previous month.