In a sign that austerity may actually be changing the habits of the UK’s consumers, the figures show that credit card lending in April experienced its biggest monthly contraction since August 2006. In fact, consumers paid back £118m more than they borrowed on credit cards in the month.
For anyone getting excited that the financial crisis has spawned a generation of fiscally responsible Brits, there is a downside. Lending in the form of loans and overdrafts actually grew, suggesting that whilst people are getting less credit card debt to supplement disposable income, they are struggling to pay their monthly bills – these are the standard uses of the two types of debt.
But given the government’s insistence that banks ought to be lending again, the increase is not necessarily a bad thing: total lending to individuals rose by £1.4bn – and any increase is welcome – but this was in line with the previous six month average. Of that total, £1.1bn was in the form of mortgages.
The increase in mortgage approvals is perhaps a good influence on the stuttering economy, but we are nowhere near back to the level of lending seen before the credit crunch in 2007. Before the crash, around 90,000 loans per month were doled out by banks, but in April, just 52,000. Whilst it wouldn’t be a good thing for lending to be at pre-crash levels (that's one of the reasons we had a crash in the first place), the current rate is probably too low.
Rumours are flying that the FSA will force banks to limit the size and number of mortgages they give out during boom years. If true, this will mean that we’re unlikely to rocket out of this dearth of credit no matter what miraculous catalyst comes along.
Still, given the cash-strapped nature of the British economy, it can only be a good thing to see some bunce moving around again. And if people are cracking down on their own credit card temptations and choosing to pay down debts instead, so much the better…