Consumers rein in spending as Brexit uncertainty looms large

Nervous British consumers spent sharply less on credit cards in December, choosing instead to save their cash or use it to pay down debts, official data showed on Wednesday.

The latest money and credit figures from the Bank of England showed annual consumer credit growth slowed to 6.6% in December, down from 7.7% in November and the weakest since December 2014.

Net extra money borrowed fell to £0.7bn. Within that, credit card borrowing was "particularly weak" at £0.1bn, the Bank said, compared to an average of £0.3bn since July. The overall consumer credit monthly flow was slightly below the £0.9bn average seen since the summer and significantly below the average between January 2016 and June 2018 of £1.5bn.

The Bank said that the decline in net consumer credit reflected an increase in repayments, which had more than offset higher gross borrowing.

It added: "Households significantly increased their deposits in interest-bearing instant access savings accounts in December, contributing to an increase in households’ money holdings."

The UK currently has record high employment rates, with wages growing at the fastest rate for nearly a decade.

But Brexit uncertainty and concerns about the economy's long-term strength continue to cast a pall. Data from individual retailers and business groups showed that a number of shops struggled during the traditionally bumper festive season as consumers reined in spending.

"Households and lenders both are tapping on the breaks," said Samuel Tombs, chief UK economist at Pantheon Macroeconomics.

"Looking ahead, the fourth-quarter Credit Conditions Survey showed that a small majority of lenders expect to reduce the availability of unsecured credit further in the first quarter, while the sharp fall in consumers’ confidence at the end of last year points to growing caution as the Brexit deadline looms."

Mortgage market activity remained "broadly stable" in December - as it has been since 2016 - with households borrowing £4.1bn secured against property, a slight improvement on the previous six-month average.

Mortgage approvals were around 63,800, unchanged on November but below the 2018 average of approximately 65,200.

Said Tombs: "The marginal decline in mortgage approvals, to just 1% below its 12-month average, likely is just the beginning of a sharper decline as the March Brexit deadline draws closer."

The amount businesses borrowed increased by £2.5bn in December. Companies borrowed £2.3bn from UK banks, while commercial paper issuance was £3bn, its strongest since July 2003. However, that was offset by large net redemptions of bonds.

"Net bond issuances in 2018 as a whole was weak relative to its pre-crisis average and recent years," the Bank noted.