hiked to its highest level in more than a year, pushing all forms of unsecured credit among households to a whopping £1.2 billion. This increase in household debt not only exceeded the £0.6bn average of the previous six months, but also beat City forecasts of a £0.8bn rise.
While many low income household have become more reliant on loans to cope with rising utility expenses and grocery bills, analysts say much of the increase reflected a more confident, pre-pandemic pattern of borrowing. They are of the view that this is also the reason behind the dramatic reduction in savings growth, as they say some consumers are more confident and spend a higher proportion of their income, while there are also other who have reduced saving to cover higher bills. In the month of November, the amount of money set aside in deposit accounts were also cut back to £4.5 billion, a sharp decline from the £11.2 billion average registered over the previous 12 months.
Commenting on these figures, the chief economic adviser to the EY Item Club, Martin Beck, noted that while it is clear that households are increasing borrowings and cutting back on savings to cope with a squeeze on their household finances, “it also appears to be indicative of a more bullish consumer mindset”.
However, this trend for higher borrowing and lower saving may be reversed by the threat from the Omicron variant of the coronavirus in December, according to Samuel Tombs, the chief UK economist at the consultancy Pantheon Macroeconomics, who pointed out that households are expected to respond to increasing economic uncertainty over the next few months.
“Saving likely will remain elevated at least until March, when Omicron should be on the retreat,” he said. “Meanwhile, the outlook for inflation to rise to about 6% in the spring suggests that households will save much less this year to sustain their current level of expenditure, given the outlook for falling real disposable income.”
