Borrowing wanes as rising inflation tightens squeeze on UK consumers
Consumer borrowing eased back last month as inflation's upward march forced UK shoppers to rein in their spending, according to new figures.
The British Bankers' Association (BBA) found consumer credit had dropped to 5.1% in May, down from 6.4% in April, in response to a smaller take-up of personal loans and overdrafts.
The appetite for borrowing on credit cards also shifted down a gear to 5.5% from 6.4% over the period, reflecting May's drop in retail sales.
Eric Leenders, BBA managing director for retail banking, said mounting costs were taking their toll on deposits and savings.
He said: "This month's figures show that in the run-up to the General Election, credit growth in personal loans, cards and overdrafts has slowed, which was reflected in lower spending; with increased household costs affecting growth in deposits and saving."
Inflation hit its highest level in the UK for nearly four years in May at 2.9%, tightening the squeeze on consumers already struggling due to low wage growth.
Household spending also eked out its lowest quarter-on-quarter growth since 2014 in the first quarter of this year, while retail sales fell last month amid increased prices "across all sectors", the UK's Office for National Statistics (ONS) said.
The BBA's high-street banking report said 40,347 mortgages were approved for house purchase in May, which was 3.3% lower than the same month last year and below the monthly average of 41,923.
There were 24,248 re-mortgaging approvals, which was 10% lower than May last year.
However, borrowing by non-financial companies was "largely flat", rising £23 million last month.
Mr Leenders added: "Businesses appear to be weighing up their options before raising finance to fund projects or developments. After a long period of subdued company borrowing, overall growth is starting to stabilise at a modest rate."
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said the drop in mortgage approvals from 40,750 in April to 40,347 for May showed people were more mindful about their finances now real incomes are declining.
He said: "House purchase mortgage approvals fell in May to the lowest level since September 2016, providing more evidence that households have become reluctant to make financial commitments now that real incomes are falling again.
"The number of sellers has declined sharply too, as the dip in house prices since the start of the year has led many homeowners to postpone planned sales."
