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Cooling Debt Levels

Recent figures for the levels of borrowing in the UK suggest that people are cutting back on the amount of credit that they take out. Credit card borrowing, which is generally a good indication of people’s willingness to take on debt, rose at its lowest rate for four years during the month of July according to the Bank of England.

Net lending also showed a reduction in the level of growth, with it being at its lowest level for eight months. Much of this can be attributed to two main factors, the first being the slowdown in the housing market which means less people are taking out mortgages, and with house prices falling a little, the mortgages that are being taken tend to be for a lesser amount.

The second factor contributing to this slowdown in lending for the period running up to August is the anticipation of the rate cut that came in that month. Many people were predicting that a cut in the base rate was on the cards, which could have led borrowers to put off taking out any loans until after the MPC’s (Monetary Policy Committee) announcement. At this point this is of course speculation, as we will only know if this was the case once the next figures are released and if they show a recovery.

Time will tell whether this is just a temporary blip, or whether it is the start of a downward trend for lending in general. This will in no small part depend on the housing market, as this makes up a large part of the net lending, as things stand it appears that the recent rate cuts combined with sellers revising down their asking prices may be bringing more life into the market. Consumer spending will also play a large part, with subdued figures from the high street in recent months a recovery will be needed, increased spending typically leads to increased borrowing, especially on credit and store cards.