Lending for mortgages increased by almost a tenth in January. However, Brexit uncertainty has led to a significant drop in business lending. As a result, the outlook for the UK economy appears “sluggish”, according official figures. Overall, mortgage lending increased by 9.7% to £21.9bn in January, according to UK Finance. This is an improvement from low levels of mortgage lending, with total lending at its third lowest level since September 2016. Much of the mortgage lending rise is due to the cut in stamp duty.
In contrast, lending to businesses contracted by 1.4%. Credit card spending rose by 5.8%, much faster than the development in personal incomes. The banks have stated that repayment levels on credit cards were also high, whilst the amount of personal loans being taken out had reduced by 15%. These figures suggest that borrowers are choosing to obtain funding through their credit cards, rather than taking out a personal loan.
Despite concerns over household financial insecurity, credit card companies still offer deals of up to 37 months interest-free. Deposits at banks and building societies increased by 2% at the beginning of 2018, reaching a total of £835bn with Isa products continuing to see outflows.
UK finance has warned that the UK economy is “sluggish”. Although January demonstrates a rise in consumer confidence and improvement in wage-growth, the overall long-term outlook isn’t as positive. Households finances are expected to come under pressure, therefore the ability to spend will remain below the rate of inflation.
In regard to spending, UK Finance also warned that inflation remains elevated and will restrict public spending and the potential for economic growth. Meanwhile, businesses are still facing uncertainty around Brexit. As a result, there is an inability to make any investments with certainty, thus adopting a “wait and see” attitude to investing.