Shoppers ditch credit and use savings as prices rise

Shoppers are digging into savings to fund spending as inflation bites and banks tighten up on lending terms, figures revealed on Monday.

The British Bankers’ Association showed annual growth in unsecured consumer credit — personal loans and credit cards — dropped to 5.1% in May, the lowest since October 2015.

Its latest figures also revealed annual growth in savings deposits dropping to 2.6%, the lowest for more than five years.

Experts said consumers were seeking to prop up spending in the face of rising inflation, which hit a four-year high of 2.9% last month.

Eric Leenders, the BBA’s retail banking managing director, said: “This month’s figures show that in the run-up to the general election, credit growth in personal loans, cards and overdrafts has slowed, which was reflected in lower spending, with increased household costs affecting growth in deposits and saving.”

The data also bear out the Bank of England’s latest credit conditions survey in April, which said lenders expected scoring criteria on credit-card lending to “tighten significantly” in the second quarter of the year.

The BBA figures also provided more evidence of a slowing housing market after approvals for new house purchases fell 1% to 40,347, the lowest since the aftermath of the Brexit vote last September.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, expects inflation to peak at 3.2% later this year: “We have already had some other evidence that the housing market is slowing and consumers are becoming more cautious.

“When the Bank of England cut rates last August it provided a temporary stimulus to the housing market but that is now fading.”