Growth fears as credit cards drive recovery

Tim Wallace
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HOUSEHOLD borrowing is set to grow this year for the first time since the credit crunch struck, according to forecasts out today from the Ernst and Young ITEM Club.

But business borrowing and investment remains weak, raising concerns over an imbalanced, consumer-credit fuelled recovery.

The economists predict consumer credit will gradually pick up pace, growing 1.5 per cent this year and three per cent in 2015, after falling 23 per cent, or £50bn, since 2008.

It came as accountants UHY Hacker Young found personal loans in the third quarter totalled £4.07bn, up 30 per cent on the same period of 2012 and their highest level since 2009.

And insolvency group Begbies Traynor found a marked fall in problems at consumer-facing firms like retailers, restaurants and hotels in the third quarter. But the recovery has yet to feed through into business borrowing and investment – net lending to firms is still expected to fall by four per cent this year, the ITEM Club said.

“It is not sustainable in the long run to have the economy growing purely because people are saving less and less – this situation cannot go on forever,” said Berenberg Bank economist Robert Wood. “But I am optimistic we will see business investment coming back next year. The main thing lacking for that is demand for their products, and as that comes back firms will become more confident.”

The economy expanded 0.8 per cent in the third quarter, official figures showed on Friday. But if investment does not grow, the recovery may falter.

“Up until now, UK’s embryonic recovery has been based on consumer spending,” said ITEM Club economist Carl Astorri. “But really to get a sustained recovery into next year we do need to see that broaden into business investment, which requires some borrowing, and export-driven growth.”

Business surveys are showing increasing optimism, “but we do need to see that turn into action,” he said.