Consumer credit growth slows to eight-month low - BoE

Consumer credit growth continues to slow but the flow of borrowing rebounded slightly more than expected, the Bank of England said on Thursday as it continues keenly keep an eye on a potential red flag for the economy.

The Bank reported a flow of £1.6bn of UK net consumer credit in March, which was up from last month’s outturn of £1.4bn and above the consensus expectation of £1.3bn.

But the rate of annual growth dipped to 10.2%, an eight-month low, from 10.5% in February and January, 10.6% in December and a peak of 10.9% in November.

Last month the BoE's Financial Policy Committee warned about the risk to banks from the record rate of expansion in consumer credit over the last decade, raising particular concern about the long interest-free terms being offered.

Thursday's BoE figures follow those from the banking industry last week that showed a fall in consumer credit card lending in March.

Total net consumer borrowing on credit cards and on personal loans and overdrafts slowed to £247m in March from £337m and £458m in the previous two months, according to the BBA.

A higher flow of consumer credit was encouraging for UK economic growth, said Scott Bowman at Capital Economics.

While the central bank's Monetary Policy Committee will be watching for signs that credit growth is getting out of hand, he felt these figures "shouldn’t cause too much concern for policymakers".

Signs of a modest underlying slowdown developing in unsecured consumer borrowing from November's peak tie in with consumers becoming more cautious as their purchasing power is increasingly diluted by rising inflation and muted earnings growth, said economist Howard Archer at IHS Markit, though he noted that deteriorating fundamentals for consumers will likely increase the need for some people to borrow.

"It looks inevitable that the fundamentals for consumers will weaken further over the coming months with inflation continuing to rise due to the weakened pound and companies likely increasingly looking to hold down pay to limit their total costs.

"Indeed, it looks probable that inflation will move clearly above earnings growth over the coming months. Furthermore, the labour market also looks likely to come under mounting pressure despite its recent resilience."