Households have started to cut back on the high levels of borrowing that helped the UK to become the fastest growing economy in the G7 last year.
According to new figures from the Bank of England, consumer credit grew at its slowest rate for two-and-a-half years between November and December.
The monthly rate of growth was 0.5 per cent, down from 1 per cent the previous month, although the annual rate remained high at 10.6 per cent.
There are signs that households are starting to feel the effect of the fall in the value of the pound that has raised the cost of imports.
Other recent figures suggest that while the growth of the UK economy was driven by consumer spending during the fourth quarter of 2016, this began to slow in December.
Retail sales volumes fell 2 per cent in the last month of the year compared to November, and a recent consumer confidence survey reported that households were more pessimistic about the future and spending more on essentials.
“We are always hesitant to call a trend from one month’s data, but the drop in consumer credit growth in December was sizeable,” said Liz Martins, UK economist at HSBC.
Chancellor Philip Hammond said last week that consumers were playing “a dominant role as we go into 2017”.
He said he was relaxed about consumer borrowing and that debt levels were more sustainable than they have been. He noted that the Bank of England had signalled that interest rates would stay low for a long time, so households’ interest payments would remain low.
The rapid expansion of consumer credit has been flagged by the BoE as a concern. The bank has also published its latest data on mortgage approvals for house purchases – these reached a nine-month high in December.
However, mortgage approvals only “rose modestly”, said Howard Archer, an economist at IHS Markit.
