A slump in credit card spending in February contributed to the biggest fall in consumer borrowing in 27 years, as the second month of the latest coronavirus lockdown restricted the scope for shoppers to spend in high streets and on outdoor activities.
With people paying back more than they borrowed, consumer borrowing fell by 9.9% annually – marking the biggest contraction since records started in 1994 – the Bank of England said in its monthly report. January also set a record after a 9% decline on December’s total.
Analysts said the decline in spending on all forms of credit was likely to have continued in March, despite the slight easing in restrictions that from 29 March allows people to gather in groups of six.
Until non-essential shops reopen, which is expected to go ahead on 12 April, spending is likely to remain subdued.
“We doubt much changed in March but this pattern might start to reverse in April as the economy opens up,” said Thomas Pugh, a UK economist at the consultancy Capital Economics.
During February, people repaid a net balance of £1.2bn from consumer credit accounts, which the Bank of England said was a slightly smaller net repayment than the average of £1.8bn made since March 2020.
In a further sign of household caution, people continued to deposit significant amounts into savings and other deposit accounts, with the accumulation of a further £17.1bn in February.
The Bank of England’s chief economist, Andy Haldane, has estimated that bank deposits built up during the Covid-19 pandemic could total £250bn by the autumn and be readily available for households to spend, spurring a strong rebound in growth.
A combination of the historically low deposit savings interest and the prospect of a return to normal life in June could encourage consumers to spend as much as 20% of the total, although the official Bank of England forecast is for only 5% to be spent later this year.
Meanwhile, mortgage lending strengthened in February, with people borrowing an additional £6.2bn secured on their homes.
This was supported by the expected ending of the temporary stamp duty tax relief at the end of March, which has been extended to end of June, the Bank said.
Its report added: “February saw the strongest net borrowing since March 2016 (£7.2bn), when borrowing was also boosted by changes in stamp duty.”
However, the February figure could prove to be a peak as the rush to buy wanes over the coming months.
The money and credit report said the number of mortgages approved to homebuyers was 87,700 in February, down from 97,350 in January and well below a peak of 103,700 last November.
Nitesh Patel, the strategic economist at Yorkshire Building Society, said: “The market has been on an upward trajectory, despite rising house prices and continued economic uncertainty, with buyers refusing to be deterred from the buying the biggest- ticket item of them all.
“There is growing evidence that larger homes are currently the most desirable: since March 2020, sales of detached homes have grown from 22% to 28% of all transactions. Flats now account for a smaller share at 12%, down from 17% over the period.”
David Ross, the managing director of the property market analysts Hometrack, said: “Our data also shows us that mortgage applications are shifting towards larger, more expensive properties, and away from the typical first-time buyer, entry level properties, in line with a peak of net borrowing being the strongest since March 2016.”