Cautious consumers are paying back "virtually as much as they borrow" and putting more into savings accounts, according to the British Bankers' Association (BBA).
At the same time companies are still reducing their debt as they plan ahead for difficult trading conditions amid declining consumer confidence. There is little evidence from the latest figures that the Bank of England's Funding for Lending scheme has yet had any appreciable effect on lending to businesses, as the Governor, Sir Mervyn King, admitted recently,
Spending on credit cards rose to £7.3bn in November, which is above the monthly average for the previous 12 months. This reflected a jump in transactions paid for with credit cards, up from 120.2m in October to 123.3m last month.
But at the same time a total of £7.5bn was repaid on credit card bills, continuing a long-running trend of consumers paying off more of their plastic debts than they spend.
The BBA also said that lending through overdrafts and unsecured loans continued to be sluggish, with people repaying more than they took out in new loans. It said that the outstanding level of individuals' loans now stands at roughly half the level it peaked at in late 2007 and early 2008, just as the world banking crisis struck.
By contrast, personal savings levels have risen by 6.3 per cent over the last year and by another £3bn in November as savers sought to improve the rates of return they get, particularly on their cash ISAs, with little prospect of interest rates rising in the short term.
David Dooks, statistics director at the BBA, said: "Households are continuing to repay virtually as much as they borrow and, as people hold on to cash, deposits are growing by 6 per cent annually. The situation is not dissimilar in the business world – businesses are holding back investment or expansion plans and building up cash reserves."
In the business borrowing data, manufacturing, wholesale and retail showed an uptick in borrowing, but construction, property and hotels and restaurants all showed fairly sharp declines during November.
Howard Archer, chief UK and European economist at IHS Global Insight, said: "The sharp drop in lending to non-financial companies in November indicates that the Funding for Lending scheme is yet to have any positive impact in actually lifting bank lending to companies. Of course, it needs to be borne in mind that low lending levels to companies have reflected demand as well as supply factors. There is clearly low demand for credit, with many companies wary about borrowing and investing in the current difficult economic environment. Furthermore, many companies are looking to pay down debt."
The BBA said that net mortgage lending has gradually reduced to a "flat balance" amid high repayments being made by home owners on their mortgages as they take advantage of low interest rates to cut down their debt.
Gross mortgage lending rose to £7.7bn in November, but almost the same amount, £7.5bn, was made in repayments.
The Council of Mortgage Lenders said earlier this month that one third of mortgages taken out since 2005 has been deliberately overpaid by householders who chose to cut their outstanding loan.