Many households have built up a pot of savings throughout the pandemic
Consumers borrowed more than they paid off for the first time since August 2020, according to May figures released by the Bank of England.
Personal loans, overdrafts and credit cards, often referred to as net consumer borrowing, amounted to £280 during May.
It represents a shift in a prior trend as more people were paying off more than the amount they borrowed using consumer credit.
The amount of money allocated by households into deposits fell to £7bn in May, down from an average of £16.5bn during the six month period to April 2021.
Net mortgage borrowing meanwhile recovered to £6.6bn in May and appears to be stabilising.
Weeks of volatility came before, the Bank of England said, as households anticipated the conclusion of the stamp duty holiday.
Laith Khalaf, financial analyst at AJ Bell, believes that old habits die hard when it comes to consumer spending, “unless there is a lockdown in force”.
“Borrowing is on the rise, and savings are falling back, as the lifting of social restrictions has prompted consumers to reach for their wallets. The data is from last month, and so straddles a significant lockdown easing date. Since 17th May, hospitality and leisure businesses have been in fuller swing, so we can expect spending trends to have accelerated since then,” Khalaf said.
Many households have built up a pot of savings throughout the pandemic.
“Unfortunately those savings are earning next to nothing in the bank, and now inflation is on the rise, they’re actually losing their buying power more quickly. Indeed, the Bank of England now expects inflation to rise above 3% later this year, and that may yet prove to be a conservative estimate,” Khalaf said.
“For money that’s going to be spent in the short term, cash is still the only option, though a high street current account is likely to be offering a particularly dismal rate of interest so it’s worth shopping around for a bit more. For money that‘s not going to be used for the long term, five to ten years or more, the stock market might offer better protection from inflation for those who can tolerate the ups and downs.”
