UK consumers slow their borrowing in December ahead of expected Brexit pinch

[LONDON] British consumers slowed the pace of their borrowing in December for the first time in five months, an early sign that households might be reining in their spending as last year's Brexit vote pushes up inflation.

Consumer credit in December rose by just over one billion pounds - much less than an increase of £1.7 billion forecast in a Reuters poll of economists and down from an increase of nearly £2 billion in November.

Spending by households helped Britain rack up the fastest economic growth in 2016 among the world's big, rich economies, despite the shock of the vote in June to leave the European Union.

The annual growth rate in borrowing slowed to 10.6 per cent from 10.8 per cent in November which had been the strongest growth in 11 years. It was the first fall in the annual rate since July and the biggest slowdown since December 2013.

Credit card borrowing slowed even more sharply to show an increase of £228 million, the smallest increase since October 2015.

The BoE expects growth to slow in 2017 as rising inflation, triggered by the post-Brexit vote fall in the value of the pound, eats into the spending power of consumers.

Furthermore, Britons are saving less than at any time in the last eight years, raising questions about how long they are likely to continue borrowing so freely.

BoE Governor Mark Carney said on Jan 16 that British growth had relied heavily on consumers, rather than business investment or exports, which made it vulnerable as household spending could not outpace wage growth indefinitely.

A survey published overnight showed households might be starting to scale back on spending as last year's Brexit vote pushes up inflation.

Tuesday's figures from the BoE showed that the number of mortgages for house purchase approved by lenders increased to 67,898, a bit below the median forecast of 69,000 in the Reuters poll but still the biggest number since March 2016.

Last week, the British Bankers' Association, using less comprehensive figures, said mortgage approvals hit a nine-month high in December.

The BoE forecast in November that mortgage approvals would slow to a monthly average of 65,000 over the next six months, and major lenders expect weaker house price growth.

Net mortgage lending, which lags approvals, rose by £3.8 billion in December, the BoE said, stronger than a forecast of £3.3 billion in the Reuters poll.

The BoE also said on Tuesday that foreign investors were net sellers of British government bonds for the first time since July after some of the strongest purchases on record in the previous three months.

Net sales totalled £2.97 billion in December compared with purchases of £15.58 billion in November.

REUTERS