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Updated January 4th, 2024 at 17:33 IST

UK consumer borrowing reaches record high despite rate hikes

The housing market, affected by increased borrowing costs throughout 2023, showed signs of moderation.

Business Desk
UK consumer borrowing
UK consumer borrowing | Image:Unsplash
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UK consumer borrowing: UK net borrowing reached its highest point in nearly seven years in November, backed by a surge in mortgage approvals, according to Bank of England data. Despite a backdrop of interest rate hikes, households exhibited strong demand for loans, with consumer borrowing growing by a net £2.0 billion ($2.5 billion), surpassing expectations and marking the most significant increase since March 2017.

The surge in borrowing activity was complemented by record mortgage approvals, totaling 50,067 in November, exceeding the median forecast of 48,500 in a Reuters poll. This data reflects a surprising economic resilience, as the Bank of England raised interest rates to a 15-year high of 5.25 per cent in August, intending to maintain these elevated rates for an "extended period" to counter the inflation surge witnessed in 2022.

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Relief for housing market

The housing market, affected by increased borrowing costs throughout 2023, showed signs of moderation. The annual growth rate for net mortgage lending slowed to 0.3 per cent in November, the lowest since the series began in March 1994, indicating a market adjustment to higher interest rates.

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However, the more forward-looking mortgage approval numbers exhibited resilience, suggesting that recent decreases in mortgage interest rates might incentivise new borrowing for home purchases. Despite the positive trends, economists warn of a potential future impact on consumer spending as the cost of existing fixed-rate mortgages due to expire in 2024 is set to rise.

Services firms grow

A simultaneous survey revealed that Britain's services firms experienced stronger growth in December than initially estimated, with optimism hitting a seven-month high. Sterling strengthened by about 0.5 per cent against the US Dollar in response to the positive economic indicators.

As households navigate higher borrowing costs, the data also highlighted a continued trend of moving savings into higher-interest, fixed-term accounts, indicating a strategic financial response to the changing economic landscape. The Bank of England continues to monitor these developments as it steers the economy through a challenging environment marked by inflationary pressures and interest rate adjustments.

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(With Reuters inputs.)

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Published January 4th, 2024 at 17:33 IST

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