Consumer borrowing on credit cards jumped to its highest level in more than a year in November, pushing all forms of household unsecured credit to £1.2bn, according to the latest Bank of England data.
The increase in reliance on loans and credit cards exceeded City forecasts of a £0.8bn rise and beat the £0.6bn average of the previous six months.
Analysts said much of the increase reflected a more confident, pre-pandemic pattern of borrowing, but warned that many low income households had become more dependent on loans to cope with an inflationary squeeze on their finances from rising utility bills and the higher cost of the weekly shop.
Households also cut back on the amount of money set aside in deposit accounts to £4.5bn in November, from an average over the previous 12 months of £11.2bn.
The dramatic reduction in savings growth was seen as supporting the trend among some consumers to be more confident and spend a higher proportion of their income, while others on lower incomes reduced saving to cover higher bills.
Martin Beck, the chief economic adviser to the EY Item Club, said that while some households cut back on saving and increased borrowing to cope with a squeeze on their household finances, “it also appears to be indicative of a more bullish consumer mindset”.
The threat from the Omicron coronavirus variant would probably reverse the trends for higher borrowing and lower saving in December as households responded to increasing economic uncertainty, said Samuel Tombs, the chief UK economist at the consultancy Pantheon Macroeconomics.
“Saving likely will remain elevated at least until March, when Omicron should be on the retreat,” he said.
“Meanwhile, the outlook for inflation to rise to about 6% in the spring suggests that households will save much less this year to sustain their current level of expenditure, given the outlook for falling real disposable income.”
He added that a consumer boom led by a rapid reduction of pandemic-related savings “continues to look very unlikely” while much of the money is needed to offset higher prices.
Figures from the Bank of England for mortgage borrowing approvals revealed a fall for the sixth consecutive month in November to a level close to their pre-pandemic, 2015-19 average.
The decline to 66,400 approvals a month is expected to become the norm over the rest of this year, said Tombs, despite higher levels of buyer inquiries in November, according to the RICS residential market survey, that pushed house price inflation up by 10%.
“Higher mortgage rates look set to subdue the housing market,” he said. “The average quoted rate for a two-year fixed-rate mortgage, with a 75% loan-to-value ratio, jumped to 1.52% in November, from 1.30% in October, and likely will increase to about 1.7% by March, once the full impact of the recent rise in banks’ wholesale funding costs has been seen.”
The Bank of England increased its base rate last month from 0.1% to 0.25% and investors are betting that it rises to at least 0.75% by the end of this year.
Threadneedle Street officials appear to have set aside concerns that Britain’s economic recovery from three pandemic-related lockdowns slowed in the second half of last year as the loss of trade from Brexit and global shortages of goods affected consumer spending.
Central bank policymakers have stressed that they need to tackle rising prices with higher interest rates to dampen demand.