Credit card borrowing and short-term lending slowed in January to its lowest growth rate since September 2021, with the Omicron variant discouraging consumers from venturing into shops, restaurants and bars.
Data of the Bank of England showed a net increase of £600m in consumer loans in January, down from an increase of £800m in December and £1.2bn in November.
Separate figures covering savings showed households deposited £7.7bn in January, up from £2.7bn in December, to underline the return to a low spending, high saving pattern observed during much of the pandemic.
Debt charities said a worsening cost-of-living crisis after food and fuel bills soared was likely to push consumer credit higher in the spring.
Richard Lane, director of external affairs at debt charity StepChange, said: “The coming months look sobering in terms of pressures on UK household finances, with the known rises in National Insurance and Energy prices further exacerbated now by all the uncertainty in the geopolitical environment.
Joanna Elson, chief executive of Money Advice Trust, which manages National debt linesaid: “With food and fuel prices continuing to rise and energy costs set to soar, we fear that many more people will be put in hardship in the months to come.
She criticized the Government’s plans to offset rising bills with a £150 council tax bill rebate in April and a £200 loan in October as inadequate, adding that the Chancellor, Rishi Sunak, should “significantly increase benefits and increase assistance through the warm house rebate. ”.
Thomas Pugh, economist at accountants RSM UK, said the easing of Covid restrictions in February would combine with rising costs to drive up spending on credit cards and loans.
“As Omicron pulls away in the rearview mirror and the economy fully reopens, borrowing should rise and savings rates fall, which will help support spending in the face of soaring inflation,” a- he declared.
He said the average household was in a much better position than before the pandemic, although many of the poorest households were struggling. The data showed around £25bn of consumer credit has been paid off over the past two years, while £225bn of excess savings has been accumulated.
“Normally, a rise in consumer credit is a good indication that consumption is growing strongly because it tends to expand when the economy is doing well. People feel confident enough to borrow and splurge on big-ticket items, like cars,” he said.
“This time may be different, however. An increase in consumer borrowing over the next year is more likely to be a sign that high inflation is pushing consumers to maintain their borrowing lifestyle.
Mortgage numbers beat expectations, with a nearly 50% month-over-month increase in mortgages in January.
Loans and approvals remained high above pre-pandemic norms, said Karl Thompson, an economist at consultancy Cebr, after net mortgage borrowing rose nearly 50% from £4bn revised up in December to £5.9bn in January.
The threat of an interest rate hike from the Bank of England was seen as one of the drivers of the surge in borrowing, coupled with a tight lending market, with banks and building societies slashing offers to fixed rate.