Consumer lending growing at fastest rate in a decade

Bank of England data shows most rapid expansion of household borrowing since before credit crunch

The Bank of England scheme will allow banks to gain access to £5 of cheap funding for every £1 they lend to SMEs (Getty)

Near-zero inflation and Black Friday discounts helped trigger the biggest pre-Christmas spending spree for nearly a decade in November, Bank of England figures showed yesterday.

The Bank’s data showed consumer lending through personal loans and credit card debts up 8.3 per cent year on year over the month – the fastest pace of growth since February 2006, back in the pre-credit crunch era.

But along with another big surge in mortgage lending in November and more evidence of waning momentum among manufacturing companies, the figures fuelled concerns over the unbalanced nature of the UK recovery.

In cash terms, £1.48bn in consumer credit was advanced, the most for a single month since February 2008. The data included both the Black Friday and Cyber Monday events, which ushered in a six-week price-cutting drive among retailers.

Shoppers are benefiting from cheap food and petrol, with the cost of living at just 0.1 per cent. But recent real-terms pay increases have been largely fuelled by tumbling inflation rather than improved productivity, while the Bank has also voiced fears over the vulnerability of indebted households to an interest rate rise. The International Monetary Fund has also highlighted the risk of deeply indebted people succumbing to “income and interest rate shocks”, with household debt still standing at around 144 per cent of incomes.

The pick-up in unsecured loans follows recent data from the Office for National Statistics showing that the household savings ratio dipped to 4.4 per cent in the third quarter of 2015, equalling the lowest rate since 1963. “Consumers are borrowing more and saving less to finance their spending, which is likely a consequence of relatively high consumer confidence and extended low interest rates,” Howard Archer of IHS Global Insight said. Consumer credit lending has now topped £1bn for nine months in a row.

Mortgage lending, meanwhile, jumped £3.9bn over the month – the biggest monthly increase since April 2008. The figures showed 70,410 loans for house purchases approved in November.

But the fate of UK manufacturers struck a contrast with booming credit markets as they endured a “disappointing” end to 2015 and were eclipsed.

The Chartered Institute of Procurement & Supply’s latest healthcheck – where a score over 50 signals expansion – showed the pace of growth slowing from 52.5 to a worse than expected 51.9 in December. This was the weakest showing for three months and contrasted with faster growth from eurozone manufacturers, where even struggling Greek manufacturers returned to modest expansion.

Markit’s data showed improving export orders for UK firms last month, thanks to improved demand from key markets such as the eurozone and the US. But the pace of growth was the weakest since September.

Rob Dobson, the senior economist at survey compilers Markit, said: “The UK manufacturing sector ended 2015 on a disappointing note, with its rate of growth slowing further from October’s recent high, back down towards the stagnation mark. This suggests that industry will make, at best, only a marginal positive contribution to broader economic growth in the final quarter of the year.”