In a significant shift, the Bank of England’s latest Money and Credit data for April 2024 reveals that net consumer credit borrowing in the UK has halved, plummeting from £1.4 billion in March to just £0.7 billion. This decline, marking the lowest borrowing level since December 2021, underscores a rising caution among consumers amidst ongoing economic uncertainties.
Subdued Credit Card and Loan Activity
The downturn in April was primarily driven by reduced borrowing on credit cards, which saw a decrease from £0.7 billion to £0.2 billion. Similarly, other forms of consumer credit, including car dealership finance and personal loans, also witnessed a decline, falling from £0.8 billion to £0.5 billion. This pullback from borrowing highlights a trend of financial prudence that has taken hold as consumer confidence wavers.
Changing Growth Rates in Consumer Credit
Reflecting this cautious approach, the annual growth rate for all consumer credit slowed from 8.7% to 8.1% in April. Credit card borrowing growth decreased more significantly, from 11.9% to 10.8%, while other consumer credit forms saw their growth rate drop from 7.3% to 6.9%. These figures suggest a broader reassessment of financial liabilities among UK households.
Expert Insights on the Credit Trends
Richard Pinch, Partner at Vestigo Partners, commented on the implications of these figures, stating, “The prodigious drop in consumer credit borrowing in April is a concerning indicator of financial jitters among households.” He noted that the sharp reduction in net borrowing and on credit cards signals a move towards financial prudence after a strong start to the year. “Market expectations on rates now suggest we are entering a period where the cost of borrowing will remain at elevated levels for a longer period, representing a new normal for those taking out loans, whether that is on credit cards, via personal loans or through products like car finance,” Pinch added.
Paul Heywood, Chief Data & Analytics Officer at Equifax, offered a broader perspective, noting that while mortgage lending had increased, both consumer credit borrowing and mortgage approvals decreased in April. “The latest Bank of England figures paint a mixed picture,” Heywood remarked. He pointed to the recent drop in UK inflation to its lowest level in nearly three years, suggesting it could add impetus to a potential base rate cut that might boost mortgage demand. However, he also cautioned, “The stabilizing macro situation means more consumers should start to find bills and credit repayments more affordable, but this doesn’t tell the whole story. Prices are still rising, and we’ve already seen consistent growth in the numbers of credit cards with high levels of utilization, as the cost of living continues to impact affordability.”
Conclusion
The substantial decrease in consumer credit borrowing in April 2024 reflects a broader trend of fiscal caution among UK consumers, driven by a complex mix of high borrowing costs, the ongoing cost of living crisis, and a fluctuating economic landscape. As households adjust to these conditions, the approach to personal finance appears increasingly conservative, with potential implications for the broader economy and lending industry. This trend highlights the need for continued vigilance and adaptation by both consumers and financial institutions in the face of enduring economic challenges.
