£1bn dent in cash Isas as household budgets pressure lowers saving and spending
Savers left a £1 billion dent in cash Isas in July as they shored up money in their accounts at the slowest rate seen in over eight years, according to a high street banking report.
Pressure on household budgets is reducing both saving and spending, trade association UK Finance said.
Its figures show annual growth in personal deposits stood at 2.3% in July - the slowest rate seen since May 2009. The figures include money held in current accounts, Isas and other savings accounts.
Within the scope of personal saving, there was a net outflow of £1 billion from cash Isa deposits with high street banks in July.
UK Finance said changes to tax rules, which allow savers to earn interest tax-free in non-Isa accounts as well as in Isas, have "reduced the attraction of saving in Isas".
By contrast, deposits by non-financial companies are growing by 7.5% annually, as firms hedge against uncertain trading conditions, the report said.
Households have been seeing their budgets squeezed by rising living costs and stagnant wages, prompting concerns that some could be at risk of becoming too reliant on credit.
The figures also show annual growth in credit card borrowing was at 5.3% in July, while personal loan and overdraft growth was at minus 0.9%.
Overall, annual growth in consumer credit was at 2% in July, slightly up from 1.9% the previous month.
Howard Archer, an economist at EY ITEM Club, suggested the figures could be evidence that growth in consumer borrowing has peaked, in the light of other recent reports suggesting that banks have become more cautious in their lending behaviour.
Mr Archer said previous figures have shown annual growth in credit card lending at higher rates in recent months.
He said: "It may well be that heightened uncertainties over the outlook and increased concerns over personal finances are encouraging some consumers to be more cautious in their borrowing."
Meanwhile, the number of mortgage approvals for house purchase, at 41,587, was 9% higher in July than a year earlier, reflecting a slow period around last year's EU referendum, UK Finance said.
UK Finance also said company demand for external finance is "relatively subdued", with firms putting their plans on hold while they await more certain future trading conditions as the Brexit process continues.
Eric Leenders, head of personal at UK Finance, said: "Consumer borrowing from high street banks remained stable in July, as continued pressure on household budgets reduced spending and saving.
"It is business as usual for business lending as companies continue to borrow less and build their reserves, increasing deposits at an annual rate of 7.5%, while larger corporates are using the capital markets for funding.
"Steady levels of mortgage activity seen through the first half of the year continued into July.
"First-time buyer numbers continue to be strong, helped in part by government schemes. But that has been offset by home movers, where a shortage of homes on the market is limiting their activity."