UK mortgage approvals, consumer lending both rise less than forecast

UK mortgage approvals and net consumer credit both rose less than forecast in December, Bank of England data showed on Tuesday, along with a sharp drop in lending to businesses.

Mortgage approvals for house purchase rose to 67.9K last month from 67.5K in November, but fell short of the market consensus of 69.2K.

Net unsecured consumer credit growth slowed to an 19-month low of £1bn in December from the £1.9bn in November, which was the highest level in over a decade.

Consumer credit was also well below the £1.7bn consensus forecast and the average of the previous six months, £1.6bn.

Net bank lending to non-financial businesses fell for a second successive months, dropping £2.1bn in December after the decline of £0.58bn in November and the increases of £3.2bn in October and £1.3bn in September.

Martin Beck, senior economic advisor to the EY ITEM Club, said he thought it was unlikely that the 19-month low in consumer lending represented the start of a steep downturn, "although demand for unsecured lending is likely to ebb this year, as household finances come under increasing pressure".

Economist Howard Archer at IHS Markit said the slowdown in consumer credit growth "will likely be of considerable relief to the Bank of England, which has clearly been becoming more fretful about consumer borrowing", but agreed that it remained to be seen if it was the start of a slowing trend as consumers appeared to have been generally keen to take advantage of low interest rates to borrow.

Sam Tombs at Pantheon Macroeconomics was confident the data showed that households and firms were "starting to curtail their borrowing in response to the poor outlook for incomes".

On mortgage approvals, he said the rise was much smaller than had seemed likely given the 2.2K jump in the BBA’s narrower measure of approvals by the main high street banks in January, and noted that specialist mortgage lenders appear to have been crowded out of the market.

With bank lending to business he said the BoE stimulus measures in August "have done little to offset the detrimental impact of Brexit risk on corporate borrowing and investment decisions".