Consumer Credit Growth Drags to Its Slowest Pace in Years

UK consumer credit trends interest economic analysts, because they provide clues about the future of the larger economy, as well as credit markets themselves. More importantly, however, and closer to home, the way British consumers use credit is a direct indicator of what’s going on with individual household finances.

Consumer borrowing across Great Britain has been on a roll for dozens of months. Though slowing recently, growth has continued, amidst mixed messages from other areas of the economy. Despite the sustained trend, new information from the Bank of England suggests a noted slowdown in December, putting the brakes on a long period of booming consumer credit growth. According to the figures recently shared by the BoE, consumer credit has eased to its slowest annual growth rate in more than four years.

Bank of England Points to Marked Slowdown

The Bank of England has made it known, according to official figures, that the annual consumer credit growth rate slowed 6.6 per cent in the month of December. Consumers, it appears, are checking unnecessary spending over fears about the economy, driving the growth rate to its slowest pace in years. The figure reflects a movement toward lower household borrowing on car finance deals, credit cards, and personal loans.

Though it is traditionally a robust period for UK spending, related to holiday festivities, borrowing fell to about £700 million during December. The figure underperforms, when compared to the average spending seen during the prior six months, which held around £1 billion each month. Credit remains available, including multiple borrowing alternatives, serving bad credit applicants. But uncertainty over Brexit and other financial fears have made Britons less likely to reach for credit cards and other types of credit than they have been in the recent past.

Official Figures Show Weak Credit Card Borrowing

Within the diminished consumer credit growth figures presented by the Bank, credit card borrowing is particularly weak. The average amount put on plastic since July totaled around £300m per month. The figure for December dropped notably, settling in at £100m for the month.

The Bank had previously predicted credit card borrowing would drop to the lowest level seen in more than a decade, during the three months leading up to Brexit. With fewer than 60 days remaining before the March 29th date, the new data about slowing consumer credit growth will likely be seen as another cause for concern, approaching the historic departure.

As household spending waned last year, slowed consumer borrowing eventually became a driving factor, perpetuating the trend. It is now thought heightened concerns over a post-Brexit economy, combined with overall low household savings ratios across the UK, are placing additional pressure on consumers’ willingness to borrow more. Though real wage growth has grown stronger, household spending grew by only 2.7 per cent in 2018, noticeably lower than the peak pace seen in 2016, when spending grew by a robust 4.7 per cent.

A watershed moment may have occurred, when the pound lost value, following the Brexit vote. As the drop made imported goods more expensive for UK consumers, they felt a pinch, thought by some analysts to be several hundred pounds per family.

The consumer credit growth slowdown may stir concern about the national economy, but some observers point to a potentially positive takeaway, related to the slide. Analysts worried about household debt see the slowing growth pace as a good sign for family finances, which may not be piling-on additional debt. Overall, outstanding consumer debt balances remain high, but may not be problematic for families able to make their payments. Sliding from its peak of almost 11 per cent in late 2016, the 6.6 per cent growth recently reported among official statistics is still more than twice the rate of wage growth that has lifted British earnings.

Following months of robust growth, the slightly slowing consumer credit growth rate again eased notably in December. Brexit uncertainty and low household savings ratios may be partially responsible for enhancing the slowdown, which is only one of many indicators muddying the economic waters, leading up to March 29th.

Paul graduated in 2001 with a degree in Finance. Since then he has gone on to work for several of the UK's most well-known financial institutions.

An avid blogger and a huge football fan, Paul is here to guide you through the ins and outs of personal finance and perhaps save you some money in the process!

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