“The latest figures from the Bank of England point to volatility in the consumer recovery from the pandemic, with growth below historical levels, and this is reflected in the decreased consumer optimism noted in our latest Consumer Pulse report.
“Despite increased summer spending in August, which saw the annual growth rate for consumer credit increase slightly compared to July, the Money and Credit statistics show that consumers borrowed just £0.4 billion of credit last month, which remains well below the average £1.2 billion monthly figure seen in the two years to February 2020.
“The data also reveals that individuals borrowed £5.3 billion of net mortgage debt in August, following a net repayment of £1.8 billion in July. However, net borrowing in August was £1.4 billion below the 12 month average to June 2021, when the full stamp duty holiday was in effect. Figures for mortgage approvals, which indicate future borrowing, dropped from 75,100 in July to 74,500 in August, which is the lowest level since July 2020, although this decrease doesn’t come as a surprise, given stamp duty freezes will be tapered off this autumn.
“Our own Consumer Pulse research has shown that consumer optimism dropped in Q3, down to 54% of UK consumers saying they were somewhat, very, or extremely optimistic about the future, compared to a peak of 61% in Q2 2021. This appears to be reflected in the fact that there are real fears over the long-term recovery following the pandemic, with 24% of consumers expecting their household income to decrease in the future.
“However, this consumer research was undertaken before the first signs of the potential cost of living crisis were beginning to be felt in the UK, with looming increases in energy, fuel and food bills likely to complicate the picture further – highlighting just how bumpy the road to a full recovery could be. Whether this will translate to an uptick in consumer borrowing remains to be seen.
“Although the latest Bank of England insights suggest there has been a slowdown of sorts in the recovery to date, it’s important to remember that the economy is still in a far better position that it was this time last year. We will, however, inevitably continue to experience some volatility as consumers negotiate future challenges without the help of emergency job support schemes. As such, it’s critical that finance providers are attuned to potential fluctuations in their customers’ financial circumstances and use data and insights to help them make informed lending decisions, as well as supporting those that may be facing financial difficulties.”
Andy Piggott, director of core credit at TransUnion in the UK