• Consumers borrowed more for the first time since August 2020, according to May figures released by the Bank of England
• Money placed by households into deposit fell to £7 billion in May, compared to an average of £16.5 billion in the six months to April 2021
• The average instant access account is now paying just 0.1% according to today’s data, while CPI inflation has climbed to 2.1%
• Mortgage approvals ticked up slightly but appear to be stabilising
Laith Khalaf, financial analyst at AJ Bell, comments:
“Latest trends in consumer spending show that old habits die hard, unless there’s a lockdown in force. Borrowing is on the rise, and savings are falling back, as the lifting of social restrictions has prompted consumers to reach for their wallets. The data is from last month, and so straddles a significant lockdown easing date. Since 17th May, hospitality and leisure businesses have been in fuller swing, so we can expect spending trends to have accelerated since then.
“After a long period of hibernation, it’s natural consumers are enjoying a bit of the old normal, and many have built up a sizeable war chest of savings over the course of the pandemic. Unfortunately those savings are earning next to nothing in the bank, and now inflation is on the rise, they’re actually losing their buying power more quickly. Indeed, the Bank of England now expects inflation to rise above 3% later this year, and that may yet prove to be a conservative estimate.
“For money that’s going to be spent in the short term, cash is still the only option, though a high street current account is likely to be offering a particularly dismal rate of interest so it’s worth shopping around for a bit more. For money that‘s not going to be used for the long term, five to ten years or more, the stock market might offer better protection from inflation for those who can tolerate the ups and downs.
“It looks like the extension of the stamp duty holiday has had the desired effect, helping to stabilize mortgage demand after several months of falling approvals since the peak in November of last year. While stamp duty relief clearly boosted housing transactions, so did pent up demand from all the purchases that couldn’t happen in spring of last year. We’re now getting to the point where we can see what the property market looks like undistorted by the stamp duty holiday. However we do now have the new mortgage guarantee scheme, and combined with low interest rates and an ongoing lack of supply, I wouldn’t bet on the housing market cooling any time soon.”
