Household borrowing in November increased for the first time since the start of the pandemic, according to official data, pointing to a possible strengthening of the economy prior to the spread of the Omicron coronavirus variant.
Consumer credit data from the Bank of England showed a rise of £1.2bn in net borrowing in the penultimate month of 2021, pushing total credit up 0.4 per cent on the same month the previous year, marking the first increase in the annual rate since March 2020, when coronavirus hit the UK.
This was above the £800m in net borrowing forecast by economists polled by Reuters with credit card spending, which made up the bulk of figure, the strongest since July 2020.
The resumption in household borrowing was hailed as a signal of growing economic momentum in November, after a lacklustre performance the previous month. “The healthy rise in consumer credit in November adds to evidence that economic activity strengthened in the middle of Q4,” said Bethany Beckett, UK economist at Capital Economics.
The BoE data showed that the level of households savings fell in November with £4.5bn deposited with banks and building societies. This is less than half the monthly average of £11.2bn in the 12 months to October 2021. It is also below pre-pandemic levels: in the 12 months to February 2020 the average saving level was £5.5bn.
But some economists cautioned that rising inflation was likely to be driving the rebound in consumer credit. In November, UK consumer prices rose to a decade high of 5.1 per cent.
“This downshift [in savings] appears to reflect households’ attempt to sustain real consumption while inflation is soaring, rather than a rapidly strengthening recovery,” said Samuel Tombs, chief UK economist at Pantheon Macroeconomics.
Thomas Pugh, economist at RSM UK, said that combined with stronger retail sales data for November — which rose 1.4 per cent — the latest BoE data suggest that consumer spending was “strong” in November. But he agreed that the inflationary pressures meant the rise in household borrowing “may not translate as neatly into real GDP growth”.
Beckett said she estimated that GDP growth reached 0.5 per cent in November, up from October’s 0.1 per cent rise with her forecast for the final quarter an expansion of 0.6 per cent. This is well below the 1.1 per cent rise in GDP in the third quarter.
But she said the economic uptick would have taken a hit in December as the Omicron variant began to spread rapidly. High-frequency data, such as retail footfall, bookings in restaurants and sandwich bar transactions, suggest the economy contracted last month as the surge in infections put consumers off going out, with many being forced to self-isolate.
Beckett said she expected the UK economy to shrink by 0.8 per cent in December and that the outlook would remain “muddied by the prospect of huge numbers of people self-isolating simultaneously”.
Tombs said the impact of the new coronavirus variant meant household savings were likely to “remain elevated at least until March, when Omicron should be on the retreat”.