Bank of England reports surge in consumer borrowing
At the beginning of May the Bank of England released some startling figures that indicate consumer borrowing is experiencing its biggest surge since 2008. Between February and March consumer borrowing shot up by £1.2 billion, the biggest rise since the financial crisis a few years ago. The biggest increase was in unsecured borrowing, such as bank loans and overdrafts which accounted for £1.1 billion of the rise. Oddly, mortgage and credit card lending was left largely unchanged; in fact the number of mortgages that were approved in March was 61,341, only a short fall from February’s 61,523. Credit card lending experienced a very slight increase of just over £200 million in the same period.
So why is this happening? One of the reasons that unsecured borrowing is on the rise is likely to be the record low borrowing rates we’re currently experiencing in the UK. Just one year ago, someone that wanted to borrow £5,000 would have had to pay an average of 9.1% interest; today the same amount can be borrowed for just 8.1%. On the one hand, this could be a positive sign of consumer confidence bouncing back after recovering from the effects of the recession, but economists have warned that such a sharp increase in borrowing could also lead to an increase in long term debt. Employment is on the rise, and people are arguably feeling more comfortably and secure at work than they have done for a long time, so some would argue that a sharp increase in borrowing simply echoes these sentiments and generally good for the country’s economic outlook.
Another confidence booster came in the form of a report from the Insolvency Service, who claimed that this year has seen the lowest number of personal insolvencies since 2005. This is sure sign that spending is picking up along with borrowing, and small businesses are a lot better off because of it. According to the report, only 21,000 individuals became insolvent in the first few months of the year – it’s the lowest figure since the autumn of 2005 and a sharp fall of 18.6% on the number of a personal insolvencies just one year ago. Ironically, many economists attribute a lower rate of insolvency with a decrease in borrowing – meaning that people are in less debt and therefore financially stable, so how much we borrow in terms of overdrafts and bank loans is certainly one to watch.