UK consumers cautious in uncertain climate – BoE

by | Aug 31, 2021

UK households increased savings and borrowed no new money in July amid economic uncertainty and rising Covid-19 cases, Bank of England data showed.
Net consumer credit was unchanged, down from $0.3bn of extra borrowing a month earlier and missing analysts’ consensus forecast of £0.4bn. Households’ total liquid assets, including bank deposits and savings, rose by £7.1bn. The BoE did not give reasons for the trends.

The figures cast doubt on hopes that households would splurge money saved during the crisis to support a sustained economic recovery. The data also showed the housing market slowing after a year-long boom supported by the Chancellor’s stamp duty holiday, which ends in September.

Samuel Tombs, a UK specialist at Pantheon Macroeconomics, said: “July’s money and credit data are consistent with a further slowdown in the economic recovery in July, driven partly by some households hunkering down again in the face of a surge in Covid-19 cases.

“With Covid-19 cases likely to pick-up again over the coming months, we continue to doubt that households will draw on their excess savings or borrow significant sums to finance expenditure over the next six months.”

The number of Covid-19 cases and deaths from the disease in the UK are rising and experts have warned the trend is likely to continue when schools reopen in September. The government’s furlough scheme is due to close at the end of September, raising fears of job losses, and reports have said Chancellor Rishi Sunak wants to take a tough line on public spending.

Mortgage approvals for house purchases fell to 75,200 – the lowest since July 2020. Sunak’s decision to cut stamp duty fuelled a boom in property sales and purchases supported by households looking for more space to work from home.

Approvals were well ahead of their longer-term average but Tombs said he expected mortgage activity to return to pre-crisis levels by the end of 2021.

“Demand indicators already are softening, now that potential buyers have little hope of completing a transaction before the threshold for Stamp Duty Land Tax returns to £125K at the end of September, from £250K at present,” he said.

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