UK mortgage approvals unexpectedly declined in February and consumer credit growth accelerated amid rising cost of living, data from the Bank of England showed on Tuesday.
Approvals for house purchases, an indicator of future borrowing, fell to 71,000 in February from 73,800 in January. Approvals were forecast to rise to 74,850.
Net borrowing of mortgage debt by individuals decreased to GBP 4.7 billion in February from GBP 5.9 billion in January. Gross lending rose to GBP 26.1 billion from GBP 24.0 billion in January.
Individuals borrowed GBP 1.9 billion in consumer credit in February, bigger than the economists’ forecast of GBP 0.84 billion.
This increase of consumer credit was split between GBP 1.5 billion of additional borrowing on credit cards, and GBP 0.4 billion of borrowing through other forms of consumer credit.
On a yearly basis, consumer credit growth improved to 4.4 percent from 3.2 percent in January. This was the fastest growth since February 2020.
Overall there is surely a part of society that is already struggling with the cost of living squeeze and they may be turning to credit to tide them over, Paul Dales, an economist at Capital Economics, said.
But it seems that most households were confident enough to borrow in February and/or willing to alter their borrowing and saving behavior to maintain their spending, the economist noted. If that continues, the cost of living crisis may not lead to outright falls in consumer spending.
Further, data showed that UK businesses borrowed GBP 3.5 billion from banks in February compared to GBP 1.0 billion in January.
Borrowings by large businesses rose 3.7 percent, faster than the 2.5 percent increase in January. The annual growth was the strongest since August 2020.
At the same time, small and medium sized non-financial businesses repaid GBP 0.5 billion, marking the twelfth consecutive month in a row of net repayments.
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