The annual growth rate in consumer borrowing has slowed down to a record low in last four years as revealed by official figures of Bank of England. The figures indicate a nationwide slowdown in consumer spending as Brexit uncertainty has affected consumers as well as businesses. The Bank of England said that the annual growth in consumer credit has slowed down to 6.6% in December 2018. This is a continuation of weaker levels of household borrowing which include personal loans, car finance deals and credit cards.
The Christmas festival period is one of the key festive shopping period when consumers go on a shopping spree; however the consumer spending this season showed a steep slowdown. £700 million were borrowed last month which is below the 6 month average in preceding period of 1 billion pounds. Credit card usage witnessed sharp decline with only £100 million in monthly borrowing compared to an average of £300 million per month since July 2018.
The consumer spending in 2018 grew by 2.8% in 2018 which is well below the 4.7% growth witnessed in 2016. The current snapshot by the bank is another addition to the mounting business fears in the last 60 days before the Brexit. The banks projection that the consumer spending in UK will fall to the lowest levels after 2007 financial crisis in the last 3 months of Brexit will raise investor and businesses fears to new heights.
Earlier data showed that businesses are trying to hold onto cash in hand as Brexit nears. The bank reported that businesses are avoiding any new plans of investment. The rise in real wage in recent months has not eased pressure on households whose incomes came under pressure owing to the rise in cost of imported goods due to the drop in value of pound after the Brexit vote. Bank of England’s governor Mark Carney stated that the Brexit vote has cost £900 to every household, which is a lot of money.
While some say that it’s a sign of the bad health of economy in the face of Brexit, others who are worried about the mounting credit card borrowings in the economy, see this as a welcome sign. The borrowing son credit cards rose to more than £200 billion recently. Economists have blamed the government benefit cuts, weak wage growth, consumers shift to buy cars on finance packages and cheap deals by credit card providers for the explosion in credit card debts to unsustainable levels.
The annual growth in credit has slowed from the peak 10.9% in 2016. The current growth of 6.6% is double the wage growth rate.