UK household borrowing falls by a record £7.4bn in a month - Financial Times

UK households are saving money at a record rate, fuelling hopes that consumer spending will rebound after lockdown, helping spur economic recovery.

Net consumer credit fell by a record £7.4bn in April while monthly mortgage approvals hit a new low as the pandemic lockdown curtailed spending, according to data from the Bank of England.

The 15,800 mortgage approvals for house purchases in April was about 80 per cent down from February and the lowest level since the BoE began this data series in 1993. 

In contrast, households’ deposits increased strongly in April, by £16.2bn, well above the £5bn per month average rise in the previous six months.

“Stronger household balance sheets should mean that consumers are in a good position to start spending again once the lockdowns are lifted,” said Thomas Pugh, UK economist at Capital Economics.

However, he added that the pent-up demand was not likely to be released for a while because households remained cautious, limiting the pace of recovery in the short term.

“The lockdown appears to be causing a sharp, partly involuntary, rise in household saving,” said Chris Hare, senior economist at HSBC.

“There is a decent chance that some of this effect can unwind as the lockdown continues to ease — but lingering economic uncertainty might make this process, which will be a crucial part of the recovery from Covid-19, a slow one.”

Household budgets had been “turned on their heads” since lockdown was introduced in March, according to Alistair McQueen, head of savings and retirement at Aviva, the insurance company. “Many will be pulling back from spending in anticipation of an approaching economic downturn.”

At the same time, private sector businesses struggling with reduced demand and activity raised £16.3bn from banks and financial markets in April as they needed cash to pay for their expenses.

This was down from £31.6bn in March, possibly signalling that companies had already borrowed the bulk of what they needed. However, it was well above the £4.9bn monthly average for the previous six months.

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Economists attributed the strong level of business liquidity to the prompt policy response.

“April’s money and credit figures show that the Treasury’s and the BoE’s policy response to Covid-19 quickly funnelled cash to struggling businesses,” said Samuel Tombs, chief UK economist at Pantheon Macroeconomics. “The wall of cash should limit near-term corporate insolvencies.”

The extra secured business liquidity during the pandemic is in contrast with the recession in 2009, when businesses’ cash holdings declined from the start of the downturn.

Overall, sterling money holdings by companies and households rose by £37.3bn in April, the second-biggest increase on record after the £67.3bn in March.

Separate data published by the Treasury on Tuesday showed that lenders have approved over £31.3bn in debt to more than 745,000 businesses through government-backed schemes. This includes £21.3bn through the bounce back loan scheme and £8.9bn from the business interruption loan scheme.

Also on Tuesday, Nationwide revealed that the average UK house price fell by 1.7 per cent in May, down from a 0.9 per cent rise in April and the largest monthly drop since February 2009.

With high uncertainty and some buyers on hold, economists expect the house price slump to continue.

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2020-06-02 19:22:11Z
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