December slowdown in consumers' non-mortgage borrowing

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Consumers' non-mortgage borrowing slowed down in December from its fastest rate in more than 11 years, in signs that households could be becoming more cautious.

Bank of England figures showed consumer credit recorded a net increase of £1 billion in December, marking the weakest growth since May 2015.

In November, the increase had been £1.9 billion - the biggest rise recorded since March 2005. 

Within consumer credit in December, credit card lending increased by £228 million, and other types of borrowing including personal loans and overdrafts recorded an £812 million increase.

Both these figures were below the averages seen over the previous six months.

Consumer credit increased by 10.6% annually, edging down from a 10.8% rise recorded in November.

Howard Archer, chief UK and European economist at IHS Global Insight, said: "December's slowdown in unsecured (non-mortgage) consumer credit growth will likely be of considerable relief to the Bank of England, which has clearly been becoming more fretful about consumer borrowing.

"However, it remains to be seen if December is the start of a slowing trend."

Mr Archer said on one hand, the prospect of tougher economic conditions for households may make people more cautious about their borrowing, but on the other hand it could increase some people's need to borrow.

He said: "It looks inevitable that the fundamentals for consumers will progressively weaken over the coming months, with inflation rising markedly due to the weakened pound and companies likely increasingly looking to hold down pay to limit their total costs."

Last week, figures from the Insolvency Service showed that the number of people being tipped into insolvency jumped 13% last year across England and Wales, fuelling concerns that some people may be overstretching their finances.

Joanna Elson, chief executive of the Money Advice Trust, the charity that runs National Debtline, said despite the slowdown, the figures still show a significant growth in household borrowing.

She said: "While the jump in consumer credit in December did not quite reach the level of November's surge, we still saw a rise of £1 billion during the month - with consumer credit still growing at more than 10% a year.

"Most households will be able to cope with this extra borrowing for now, but we are concerned that a growing number could be only one change in circumstance away from falling into problem debt."

The Bank's figures also showed the number of mortgage approvals being made for house purchase edged up in December, with 67,898 approvals recorded, up from 67,461 in November.

Remortgage approvals also increased, with 47,721 approvals recorded, compared with an average of 43,266 seen over the previous six months.

Experts have suggested borrowers have been taking advantage of low mortgage rates by locking into cheap deals.

The Bank also said loans to non-financial businesses decreased by £2.1 billion in December, compared with the previous six-month average increase of £1.2 billion. 

Mr Archer said the fall will fuel concerns that businesses will become increasingly cautious in their behaviour, particularly concerning investments in the coming months, amid uncertainty over Brexit.