Britain's borrowing binge continues as Brexit looms

The latest figures give the impression that lenders and borrowers are both partying madly as the storm clouds loom

James Moore
Chief Business Commentator
Monday 30 July 2018 13:45 BST
Credit card debt is growing rapidly
Credit card debt is growing rapidly (PA)

Britain’s credit card fuelled spending binge continues apace, according to the latest figures from the Bank of England.

Lending via plastic rose by an annualised 9.5 in June, outpacing other forms of unsecured credit (8.5 per cent). Mortgage lending, by contrast, ticked up by a more modest 3.2 per cent.

The release of the figures followed a report by the Office for National Statistics that last week found UK consumers collectively spent more than they earned in 2017, the first time that has happened in almost 30 years.

It looks like we’re due a repeat this year.

How much of a worry is this?

Regulators say most people can afford to repay what they have borrowed.

However, the Prudential Regulatory Authority, that oversees institutions' financial soundness, last year undertook a review of consumer lending that resulted in what could be read as a shot across the industry’s bows.

The Financial Conduct Authority, meanwhile, tweaked its rules in July, making it clear that it wanted lenders to assess not just whether consumers can repay what they have borrowed but whether they can do so “affordably and without this significantly affecting their wider financial situation”.

It follows a speech in March by Jonathan Davidson, the watchdog’s director of supervision, in which he said that “a firm whose business model is predicated on selling products to customers who can’t afford to repay them is not acceptable, nor is it a sustainable long-term strategy”.

While much of the growth in lending might have been to those who can wear the cost, he made note of the fact that the financial situation for some people is very precarious.

Watchdogs are not yet pushing the panic button. But the above indicates a degree of concern that is justified by the figures.

Borrowing is growing at a far faster rate than either the economy or incomes, which are barely beating inflation for most people.

With Britain potentially set up for a brutal economic shock courtesy of Brexit, and the way its wretched politicians are carrying on with respect to that, perhaps its time to consider issuing another wake up call.

The stress tests conducted by the Bank of England suggest that financial institutions have got more resilient, but they have tended to see one or other of the lenders taking part required to take remedial action to gain a backdated pass.

As for consumers, well, according to the FCA’s ‘Financial Lives’ a disturbingly high proportion of 25-34 year olds (19 per cent) have no savings whatsoever while a further 30 per cent have less than £1,000. Some of them might soon face a very nasty and very real stress test.

The figures rather give the impression that both groups are partying in the last days of Pompei.

Long term they underline the need for more financial education at the very least, and perhaps more radical policy action. In the short term, it’s fasten your seatbelt time.

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