Consumer borrowing set to fall as Bank of England warning to lenders sinks in

The net balance of lenders' expectations for the availability of unsecured lending over the next three months has fallen to it lowest since the 2008 recession

(AP)

The Bank of England's warnings about excessive consumer borrowing appear to be getting through to lenders according to the central bank's latest credit conditions survey.

The survey shows that the net balance of lenders' expectations for the availability of unsecured lending over the next three months has fallen to minus 28.6 per cent, down from 16.2 per cent previously, the lowest since the 2008 recession.

Consumer credit grew at an annual rate of 9.8 per cent in August, according to the Bank, reflecting booming car loans and credit card borrowing.

The growth rate is down since late 2016, but it is still close to the rate last seen before the 2008 financial crisis.

Lowest since 2008

Bank of England

The Bank's Financial Policy Committee warned last month that UK lenders are underestimating their potential losses on credit cards and other unsecured loans to customers, and said it was compelling them to hold an extra £10bn of capital to protect their balance sheets in the event of an economic shock.

The latest Bank credit survey also showed that the net balance of lenders reporting demand for unsecured lending fell to 0.9 per cent in the third quarter of 2017, down from 9.3 per cent in the second quarter.

Household spending has played a key role in supporting the overall economy in the wake of the 2016 Brexit vote, and with real incomes suppressed by rising inflation consumer credit has been an important prop to consumption.

Business investment, by contrast, has been weak, as firms have been hit by Brexit related uncertainty.

The credit survey released on Thursday showed that there was a fall in demand for corporate lending from business of all sizes in third quarter of 2017, especially small firms.

It also reported that lenders' expectations for demand from businesses foe capital investment lending over the next three months to be the lowest since 2011.