Brits rein in borrowing on credit cards and loans as costs mount
Brits increased their borrowing by less than expected in July in a possible sign of caution among households as interest rates rise.
Data from the Bank of England Money and Credit report showed that net borrowing of consumer credit by individuals fell to £1.2bn in July, down from £1.6bn in the previous month.
This was driven by a fall in borrowing through consumer credit such as car finance and personal loans to £0.6bn in July, down from £1bn in June. Borrowing on credit cards remained broadly unchanged for the third consecutive month at £0.6bn.
Alice Haine, personal finance analyst at Bestinvest, said: “Borrowing decreased to £1.2bn in July from June’s £1.7bn, with the decline in car dealership and personal loans a sign that households are considering spending decisions more carefully in the face of rising interest rates. While food prices are gradually easing and energy bills are on the decline, living costs remain alarmingly high so taking on additional debt will only pile extra pressure on finances already squeezed to the max.
“With new personal loans or car finance deals now markedly more expensive than the lengthy era of ultra-low interest rates, big-ticket purchases such as a new kitchen, car upgrade or family holiday must be assessed carefully to ensure they are truly affordable.”
Savings slow down
According to the Bank of England data, during July households deposited an additional £0.4bn with banks and building societies, compared to £3.8bn of deposits in June. This was mainly driven by net flows of £10.1bn into interest-bearing time deposit accounts.
Net flows into ISAs saw an increase to £4.3bn in July, from £2.9bn in June. These inflows were mostly offset by net outflows from interest bearing and non-interest bearing accounts of £10.2bn and £0.8bn respectively.
Households withdrew a net £0.1bn from National Savings and Investment (NS&I) accounts, following net withdrawals of £0.2bn in June.
Deposits into NS&I accounts are not captured within households’ deposits with banks and building societies but can act as a substitute for them. The combined net flow of both household deposits with banks and building societies and NS&I accounts amounted to £0.3bn in July, a significant decrease from £3.6bn in the previous month.
Myron Jobson, senior personal finance analyst at Interactive Investor, said: “The combined net flow of both household deposits with banks and building societies and NS&I accounts amounted to £300m in July, a significant decrease from £3.6bn in the previous month.
“The fact remains that many Britons are still allocating a sizeable chunk of their income towards covering basics necessities like food and energy. The soaring cost of rents have been a particular pain point, exacerbating the cost-of-living squeeze on budgets. This leaves them with less disposable income to save.”
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