Consumer credit rise points to UK households opening wallets

UK households have arranged to borrow an extra £1.2 billion more than normal through credit cards, personal loans, overdrafts and other borrowing in the run up to Christmas, according to official figures released by the Bank of England today.

This is almost three times the average of the last six months in borrowing on credit cards, personal loans and overdrafts.

The consumer credit report for September shows that UK households took on £1.7 billion more in debt after averaging just £0.6 billion of increased debt for each of the last six months. This represents the biggest increase in unsecured borrowing for nearly five years and could be seen as a further sign that after years of belt-tightening, UK households finally feel ready to relax their purse-strings to some degree.

Howard Archer, chief UK & European Economist at IHS Global Insight said: "The marked rise in consumer credit in September is potentially notable as consumers' appetite for taking on new borrowing has been limited for some considerable time, while there has also been an ongoing strong desire of many consumers to reduce their debt.

"If consumers are becoming more prepared to spend – helped by recent healthy employment growth, lower overall inflation and an edging up in earnings growth from the lows seen earlier in 2012 – then there is a real chance the economy can continue to grow following the third-quarter rebound in GDP,” he added.

The notable increase is thought to be down to consumers arranging for extra cash to fund Christmas. It is the biggest rise in consumer borrowing since February 2008.

Analysts also believe that the Bank of England’s Funding for Lending Scheme (FLS) may also have helped increase the availability of loans.

Within the £1.7 billion extra in total lending, £0.5 billion was secured on property which is in line with the previous six-month average.

Within the £1.2 billion left and secured against consumer credit, there was a £0.3 billion increase in credit card advances. However, the big change came in increases in loans and other advances. This increased by £0.9 billion and points to consumers borrowing more money to pay for Christmas after the trend of paying down consumer debt which has gone on for most of the year.

It could also be a sign that borrowing is easier to secure as a result of the FLS scheme. However, some analysts believe it could be that households have turned to this source to secure the funds they need because pay increases have remained low this year as they have been in the previous two years.

Meanwhile, mortgage approvals increased to 50,024 in September from 47,921 in August, and higher than the previous six-month average of 48,832. This still remain at almost half the long-term pre-credit crunch average of 90,000 – 95,000.

Remortgage approvals also increased, up to 28,343 in September from 27,664.