Public's unsecured borrowing rises at fastest rate in 10 years

Analysts said the public are likely to be borrowing more to fund consumption at a time when wage increases are still very weak

The British public are racking up new personal debt at the fastest rate in almost a decade, official data showed yesterday.

The Bank of England reported that in the three months to November last year, unsecured consumer credit – which includes credit card debt and personal loans – rose at an annualised rate of 8.3 per cent. That is the quickest growth rate seen since October 2005.

Analysts said the public are likely to be borrowing more to fund consumption at a time when wage increases are still very weak. “It may well be that a significant amount of people have recently been borrowing more due to the squeeze on their purchasing power coming from extended low earnings growth,” said Howard Archer at IHS Global Insight.

Martin Beck at the EY Item Club said the growth rate was “reminiscent of the credit-fuelled days of the mid-2000s”.

The spotlight has been thrown on personal debt after the Office for Budget Responsibility (OBR) forecast last month that unsecured household borrowing will balloon to £791bn by the end of the decade, up from £438bn now. That would take unsecured debt to a record 55 per cent of total incomes – from the present level of 37 per cent.

However, there were further signs of a slowdown in the property market yesterday, with the number of monthly mortgage approvals falling to 59,029 in November. That marks a 23 per cent decline on the 76,611 peak reached last January, reflecting the tightening of mortgage affordability rules.

The most recent house price figures from the Nationwide showed a 7.2 per cent increase in house prices in the year to December, down from the 8.5 per cent growth in the year to November.

However, the OBR is still forecasting that house prices will rise by a further 3o per cent by the end of the decade – much faster than incomes and entailing a considerable rise in aggregate mortgage borrowing. The OBR expects this trend to take total household financial liabilities, relative to incomes, to a new record high of 184 per cent by the end of the decade.

On the business lending side there was a more encouraging picture, with net lending to small and medium-sized businesses rising by £252m in November – the biggest increase since the series was started by the Bank of England in 2011. Net lending to all non-financial businesses, however, fell again by £1.1bn.

Elsewhere, there was further disappointing data on manufacturing, with the latest snapshot of the sector pointing to the weakest growth in three months in December. The Markit/Cips Purchasing Managers’ Index, where any reading above 50 signals growth, came in at 52.5 – down from 53.5 in the previous month and lower than the 53.7 that the City had been expecting.

“The latest survey provides further evidence of the ongoing slowdown in the UK manufacturing sector, with output and new order growth easing to their second-weakest rates during the past year and a half,” said Rob Dobson of Markit.

James Knightley of ING bank said that “the long hoped-for economic rebalancing story is not playing out as envisaged”.

The weak economic data helped to send the pound down more than 1 per cent against the dollar to $1.5372, a 16-month low, as traders placed further bets against an early hike in interest rates from the Bank of England.