Demand for loans increase in UK despite rate hikes

British consumers recorded the highest net borrowing in almost seven years in November, while lenders approved the highest number of mortgages since June, according to data from the Bank of England. This data adds to the indication that households are managing relatively well despite elevated interest rates.

Consumer borrowing increased by a net £2.0 billion ($2.5 billion), the most since March 2017 and surpassing all expectations in a Reuters poll of economists. This followed a rise of £1.4 billion in October. November's official data revealed stronger-than-expected retail sales, boosted by seasonal discounts during Black Friday.

The Bank of England data disclosed that loans for home purchases reached 50,067 in the month, exceeding the median forecast of 48,500 in the Reuters poll.


In August, the British central bank raised interest rates to a 15-year high of 5.25% and has signaled its intent to maintain elevated rates for an extended period to mitigate the risks associated with the surge in inflation in 2022.

A concurrent survey indicated that Britain's services firms experienced stronger growth in December than initially estimated, with optimism reaching a seven-month high. Following the publication of the Bank of England data and the survey, Sterling strengthened by about 0.5% against the U.S. dollar.

While the surge in borrowing costs had slowed the housing market throughout 2023, the data showed that the annual growth rate for net mortgage lending slowed to 0.3% in November, the lowest since the monthly series began in March 1994. However, changes in the total value of mortgage lending typically lag behind more forward-looking approval numbers.

Economist Ashley Webb from Capital Economics noted the resilience in approval data, suggesting that recent declines in mortgage interest rates could stimulate new borrowing for home purchases. Nevertheless, Webb cautioned that the cumulative impact of higher borrowing costs, affecting around 1.5 million existing fixed-rate mortgages expiring in 2024, might dampen consumer spending.

The Bank of England data also revealed that households continued to transfer savings into higher-interest, fixed-term accounts.