Lending for mortgages jumped in January by nearly a tenth, but borrowing by businesses to invest dropped back amid Brexit uncertainty, according to official figures that paint a “sluggish” picture of the UK economy.
Total mortgage lending rose by 9.7% to £21.9bn in January compared with the same month a year ago, according to UK Finance, the body that represents all the major high street banks. Much of the boost to mortgage lending is believed to have come from a cut in stamp duty, although the bounce-back comes from low levels, and total lending was still at its third lowest level since September 2016.
But lending to businesses contracted by 1.4%, with construction falling. Spending on credit cards rose by 5.8%, or much faster than the growth in personal incomes, although the banks said that repayment levels on credit cards were also high.
The figures suggest that borrowers are switching away from personal loans, which declined by 15% on the month, and preferring to borrow via their credit cards instead. Despite concerns about household over-indebtedness, the credit card companies continue to offer deals of up to 37 months interest-free.
Deposits at banks and building societies advanced just 2% on the year, hitting a total of £835bn, with Isa products continuing to see outflows.
UK Finance warned that the overall figures suggest that the UK economy is “sluggish”. It said: “While January figures showed an increase in consumer confidence and improvement in wage growth, the underlying long-term picture is pointing to sluggish growth.
“Households are expected to continue to feel the squeeze on their finances, and therefore their propensity to spend, as real earnings, when adjusted for inflation, are still running well below the inflation rate. At the same time, household savings are declining as debt servicing costs, as a share of disposable income, rise.”
It warned that inflation will remain at elevated levels, which will keep consumer spending at subdued levels and restrain the outlook for economic growth. Meanwhile businesses are taking a “wait and see” attitude to investing, as uncertainty around Brexit and growth continue to take its toll.
UK Finance noted a discrepancy between business confidence, which is strong, and investment levels, which are sudued.
Stephen Pegge of UK Finance said: “Business sentiment remains positive with confidence in short-term trading conditions buoyed by the recovery in international markets. Investment levels remain broadly unchanged and borrowing continues to err on the side of caution, as companies adopt a ‘wait and see’ attitude to trading uncertainties, opting to use their deposits as buffers for spending decisions.”