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Household finances stay strained as consumer credit sees slow growth

Annual growth in consumer credit eased to 9.8%, which is its lowest level since April 2016.

Consumer credit grew at its slowest pace for more than a year last month as household finances remain under pressure, according to figures from the Bank of England.

The Bank’s Money and Credit report showed annual growth in consumer credit eased to 9.8% – its lowest level since April 2016.The amount borrowed reached £1.179 billion in July, down from £1.351 billion the month before as credit card lending dropped by 13% to £440 million.

It comes as official figures released last week laid bare the sustained squeeze on households, with consumer spending growing by 0.1% in the second quarter, down from 0.4% for the first three months of the year. Spending has been impacted by soaring inflation in response to the Brexit-hit pound, although the cost of living paused at 2.6% in July.

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(PA Graphics)

The report also said mortgage approvals for house purchases were “stronger than recent months”, picking up pace to levels seen at the start of the year. There were 68,689 loans getting the green light in July, while approvals for re-mortgaging were also stronger at 46,231 for the period.

Loans to large non-financial businesses climbed by £8.2 billion last month, driven by a “large increase” in lending to British manufacturers. However, lending to small and medium-sized firms dropped by £200 million in July.

Borrowing for private non-financial corporations recorded its biggest rise for three years at £8.9 billion for the period.

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(PA Graphic)

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said consumers had turned cautious, but there were signs that businesses were willing to invest. He said: “The £8.9 billion increase in private non-financial corporations’ borrowing from all sources in July—the biggest rise in three years—is the most eye-catching figure in the latest money and credit release.

“The surge in corporate borrowing, which follows June’s similarly-hefty £8.7 billion increase, could be a sign that firms are about to invest more. This interpretation, however, jars with the recent decline in business confidence and the still subdued levels of surveys of investment intentions.

“It’s more plausible, then, that the surge in corporate borrowing reflects firms fearing higher interest rates and locking in low borrowing costs.”

Howard Archer, chief economic adviser at EY ITEM Club, said: “Bank of England report that mortgage approvals for house purchases unexpectedly jumped to a 16-month high in July.

“While July’s marked pick-up in mortgages may ease some concerns over tepid housing market activity, we have doubts that it marks the start of a significant upturn. Latest survey evidence generally still points to lacklustre activity.

“Housing market market activity can be volatile from month to month; and it remains under pressure from a serious squeeze on consumers, weakened confidence and heightened caution over engaging in major transactions. House prices still look unlikely to us to rise by more than 2% over 2017.”

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