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Record repayment of consumer borrowing

The Bank of England has just reported that unsecured loans, which include bank loans but exclude mortgages, fell by £713m in October, which is the biggest month-on-month fall since records began in 1993.

 

The total amount of unsecured consumer borrowing now stands at £228bn. When we look at the change in consumer credit for October the figures show that credit card borrowing actually rose by £134m to give an overall net fall in consumer credit of £579m.

 

Consumers have now repaid more unsecured debt than they have taken out in additional borrowings for the fourth month in a row.

Consumers are using spare cash to repay debt.

Consumers are using spare cash to repay debt.

 

Why is this happening? Well, on the one hand the availability of unsecured credit from banks is limited and could well be acting as a brake on borrowing. But also, consumers are currently reducing their levels of saving in the current climate of low interest rates and using any surplus cash to pay off their debt. This makes sense as the opportunity cost of putting money into savings accounts has dropped.

 

This change in consumer financing may well have implications for the recovery as it could limit consumer spending and thus reduce economic growth.

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Posted in Consumer Expenditure, economic growth, Interest rates

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