Households keep borrowing, BoE figures show

Consumers borrowed an extra £1.4bn in January as increased credit card lending more than offset a reduction in other loans and advances, Bank of England figures showed on Thursday.

January’s figure was lower than the £1.6bn borrowed in December but was level with October and only slightly below the £1.5bn six-month average. The reduction caused the annual rate of increase to edge down to 9.3% from 9.5% the previous month.

Ruth Gregory, UK economist at Capital Economics, said the rate of growth remained very high by past standards and would do little to ease concerns that an unsecured credit bubble is building up.

Gregory said: “There is little to suggest that consumers’ appetite for unsecured credit has waned. Indeed, consumers appear to have continued to borrow in order to sustain their spending in the face of the real pay squeeze.”

Annual growth in credit card lending picked up to 9.6% from 8.9% a month earlier as the growth rate for other loans eased to 9.2% from 9.8%.

UK consumers have borrowed at low interest rates to make up for real incomes squeezed by low wage increases and rising prices, raising fears of a shock when interest rates rise. The Bank of England has said it is watching consumer borrowing but that household are not on a debt-fuelled binge.

Gregory said that even if interest rates rise by more than markets expect the cost of servicing debt would be manageable by historic standards though some households would suffer. Wage growth may put consumer spending on a surer footing later in the year, she added.

The BoE’s figures also showed a rebound in mortgage lending after a big fall in December, suggesting that month was a blip. Lenders approved 67,478 mortgages in January – up 9.4% on the previous month and well ahead of expectations for 62,000.