UK consumer credit slows sharply in July

Lending to both businesses and consumers slowed unexpectedly in July, although mortgage approvals were just a tad weaker than anticipated.

According to the Bank of England, total lending to individuals increased by 0.2% month-on-month to reach £1,595.5bn.

That was split between a rise of 0.4% on the month or £0.8bn (consensus: £1.6bn) to £213.5bn in consumer credit and of 0.2% or £3.2bn (consensus: £3.9bn) to £1,382bn in lending secured on dwellings.

Bank noted how consumer credit had been volatile "in the recent past", pointing to similar weakness in March.

Within consumer credit, lending via credit cards was especially weaker, advancing by just 0.3% against June after a rise of 0.8% in the month before.

It was a similar story in 'other loans and advances', where the monthly rate of growth slowed from a clip of 0.7% in June to 0.4% for July. In April, they had increased by 1.0%.

Versus a year ago, the rate of growth of consumer credit slipped from the 8.8% clip seen over each of the previous three months to 8.5%, while lending secured on dwellings was unchanged at 3.2%.

"Although the annual growth rate of consumer credit remains high, particularly compared to 2009-12, the gradual slowing continues the trend since late 2016," the BoE said.

The number of mortgages for home purchase meanwhile slipped from 65,374 for June to 64,768 in July (consensus: 65,000).

Lending to non-financial businesses meanwhile shrank at a 0.2% pace year-on-year in July, versus a June reading of 1.6%.

Also according to the BoE, versus June the rate of growth in the UK's money supply, as measured by the M4 monetary aggregate, slowed from 0.6% to 0.2%.

Commenting on Thursday's consumer credit figures, Dr.Howard Archer, the chief economic advisor to the EY ITEM Club, said: "July's data reinforces the impression that consumers are currently relatively cautious in their borrowing while lenders have certainly become warier about advancing unsecured credit. This is welcome news for the Bank of England given its view that recent rapid growth in consumer credit has created a 'pocket of risk'.

"The record low savings ratio (4.1% over 2017 and also 4.1% in first quarter of 2018) and the prospect of further (albeit gradual) interest rate rises to come over the coming months may well be limiting the willingness to borrow. It is also possible that the recent modest overall improvement in real earnings growth may have reduced some consumers’ need to borrow."

Dr.Archer's forecast was for house prices to rise at a 2.5% clip in 2018 and 2019, with the housing market continuing to "struggle to step up a gear".