Britons’ borrowing fell in July defying economists’ expectations as households continued to grow their savings, suggesting the summer rise in coronavirus infections hit spending.
UK consumer credit dropped to zero last month, its lowest since February and down from £300m in June, according to data from the Bank of England released on Tuesday.
“[The results] are consistent with a further slowdown in the economic recovery in July, driven partly by some households hunkering down again in the face of a surge in Covid-19 cases,” said Samuel Tombs, chief UK economist at the consultancy Pantheon Macroeconomics.
The drop in borrowing slipped well below the £441m increase forecast by economists polled by Reuters.
Meanwhile, households saved an additional £7.1bn in July. While the amount of money deposited in banks and building societies was lower than in June, it still surpassed the monthly average of £4.7bn in the year leading up to the pandemic.
The BoE data provided “a further sign that rising virus cases sapped households’ willingness to spend in July,” said Ruth Gregory, senior UK economist at Capital Economics. “But . . . there is still plenty of scope for spending to rebound strongly further ahead,” she added.
The total amount saved by British households since the start of the pandemic came to about £180bn, or 8.3 per cent of total UK economic output.
Martin Beck, senior economic adviser at the consultancy EY Item Club, said that despite the “limited” recovery in unsecured lending he remained “optimistic” that lending flows would steadily improve in the second half of 2021, as consumer confidence returned and people tapped into a “large pile of ‘excess’ savings”.
The BoE findings also showed that approvals for house purchases dropped to 75,200 in July, down from 80,300 in June, their lowest level since July 2020.
The decline in mortgage approvals largely reflected a decrease in the threshold up to which buyers in England avoid paying stamp duty from £500,000 to £250,000, which came into effect from July 1.
“Confidence remains strong, however, particularly as borrowing rates remain low,” said Tomer Aboody, director of property lender MT Finance.
With the effective rate on new mortgages decreasing by 12 basis points to 1.83 per cent in July, “borrowers are finding that the dream home they may not have been able to afford before is now within reach,” he added.
Despite the fallback, mortgage approvals remained above pre-February 2020 levels — before the first Covid-19 restrictions were imposed.
Households made a net repayment on their mortgages in July for only the second time in the past decade.
Andrew Montlake, managing director of London-based independent mortgage broker Coreco, said that the net repayment in July was partly due to the end of phase one of the stamp duty holiday and “partly a result of the stupendously low rates on offer, which are seeing people remortgage in droves.”
Source: Economy - ft.com
