Stay up to date with notifications from The Independent

Notifications can be managed in browser preferences.

Consumer credit shows rise despite high street gloom

Paul Wallace Economics Editor
Friday 18 August 1995 23:02 BST
Comments

Your support helps us to tell the story

From reproductive rights to climate change to Big Tech, The Independent is on the ground when the story is developing. Whether it's investigating the financials of Elon Musk's pro-Trump PAC or producing our latest documentary, 'The A Word', which shines a light on the American women fighting for reproductive rights, we know how important it is to parse out the facts from the messaging.

At such a critical moment in US history, we need reporters on the ground. Your donation allows us to keep sending journalists to speak to both sides of the story.

The Independent is trusted by Americans across the entire political spectrum. And unlike many other quality news outlets, we choose not to lock Americans out of our reporting and analysis with paywalls. We believe quality journalism should be available to everyone, paid for by those who can afford it.

Your support makes all the difference.

Consumer credit extended by Britain's main banks rose more in July than at any time since the start of the 1990s. But it remains unclear whether this marked a return of consumer confidence or signalled distress borrowing.

Two years ago, consumers were repaying debt, even though consumer spending was picking up nicely. But since the end of 1994, consumers have been consistently ready to borrow, even though the rate of growth in consumer spending has tailed off.

Indeed in the first quarter of 1995, consumer credit grew by over pounds 500m at a time when spending fell back from the previous quarter, the first such decline since the end of the recession. The increase in borrowing has built up even more since then, despite weak sales on the high street.

The most likely explanation is that as consumers flinch from entering or trading up in the housing market, they are becoming more prepared to enter into smaller-scale borrowing. With credit card advances rising by over pounds 100m in July, the summer sales may also have contributed to the jump in personal credit.

There is a similar uncertainty to the increase in borrowing by industrial and commercial companies, which were also repaying debt until recently. In July, British banks lent them over pounds 500m.

This may be a less positive development than it seems. At least part of the increase appears to be financing an unplanned build-up of inventories, with wholesalers and retailers increasing their borrowing by pounds 160m.

Provisional estimates from the Bank of England showed a jump in bank and building society lending in July of pounds 6.9bn, double what the market had been expecting. However, distortions including Lloyds Bank's purchase of the Cheltenham & Gloucester Building Society meant that the market in effect discounted the increase and its effect on raising M4 growth to 8 per cent rather than the 7 per cent forecast.

Join our commenting forum

Join thought-provoking conversations, follow other Independent readers and see their replies

Comments

Thank you for registering

Please refresh the page or navigate to another page on the site to be automatically logged inPlease refresh your browser to be logged in