Coronavirus economic impact update

Sign up for myFT Daily Digest and be the first to understand the news about the economic impact of the coronavirus.

As households continue to increase their savings, Britons’ borrowing fell in July, which was far from economists’ expectations, indicating that the increase in summer coronavirus infections hit spending.

According to data released by the Bank of England on Tuesday, consumer credit in the UK fell to zero last month, the lowest level since February and lower than the 300 million pounds in June.

“[The results] Consistent with the further slowdown in the economic recovery in July, partly due to the fact that some families are shrinking back in the face of the surge in Covid-19 cases,” said Samuel Tombs, chief British economist at consulting firm Pantheon Macroeconomics. .

The decline in borrowing was much lower than the 441 million pounds predicted by economists surveyed by Reuters.

At the same time, the family saved another £7.1 billion in July. Although the amount deposited in banks and building associations was lower than in June, it still exceeded the monthly average of £4.7 billion in the year before the pandemic.

Capital Economics senior British economist Ruth Gregory (Ruth Gregory) said that the Bank of England data provided “further signs that the rising virus cases weakened households’ willingness to spend in July.” “But… there is still a lot of room for a strong rebound in spending in the future,” she added.

Since the start of the pandemic, the total amount saved by British households is approximately 180 billion pounds, accounting for 8.3% of the total output of the British economy.

Martin Beck, senior economic adviser to the consulting firm EY Item Club, said that although the recovery of unsecured loans is “limited”, he is still “optimistic” that loan flows will improve steadily in the second half of 2021, as consumer confidence is restored and people start Take advantage of “a lot of’excess’ savings”.

The Bank of England’s survey results also showed that approvals for house purchases in July fell from 80,300 in June to 75,200, the lowest level since July 2020.

The decline in mortgage approvals largely reflects the reduction in the threshold for buyers in England to avoid paying stamp duty from £500,000 to £250,000, which will take effect on July 1.

“However, confidence remains strong, especially when borrowing rates are still low,” said Tomer Aboody, director of MT Finance, a real estate lender.

He added that as the effective interest rate on new mortgages fell by 12 basis points to 1.83% in July, “borrowers found that their dream homes that they might not be able to afford before are now within reach.”

Despite the decline, mortgage approvals are still higher than before February 2020-before the implementation of the first Covid-19 restrictions.

Families paid a net mortgage in July, the second time in the past ten years.

Andrew Montlake, managing director of Coreco, an independent mortgage broker in London, said that the net repayment in July was partly due to the end of the first phase of the stamp duty holiday. It’s to see people remortgaging in droves.”