The effects of the Bank of England’s aggressive interest rate rises have yet to fully feed through the UK economy as Brits continue to borrow and look to get on the property ladder, official data out today shows.
A clutch of numbers released by the Bank of England today revealed consumers are not yet being deterred by higher interest rates, with credit card spending up £1.7bn in June, above the £1.1bn increase in May.
That was the highest monthly increase since April 2018 and far above the City’s expectations for a £1.3bn jump.
Approvals on home loans for property purchases hit 54,700 in June, up from 51,100 in May, a surprise to the markets who thought they would fall to around 48,000. Some potential buyers may have rushed to secure a loan ahead of an anticipated spike in mortgage rates.
June’s credit numbers suggest the demand side of the economy is yet to be influenced fully by the Bank’s 13 successive interest rate rises.
“The drag from higher interest rates continues to weigh on the housing market, but other areas of the economy appear to remain resilient,” Ashley Webb, an economist at Capital Economics, said.
Mortgage rates started to tick back up in June before rocketing higher after a worst than expected inflation print of 8.7 per cent. That sent 2-year and 5-year mortgage rates above their post mini-budget levels.
Higher home loan costs have prompted economists to forecast UK house prices could slide around 10 per cent from their peak and that a recession may still hit the country.
Signs of sticky inflation prompted money markets to ratchet up their peak Bank of England interest rate expectation to as high as 6.5 per cent. That lured mortgage lenders into lifting rates.
The Bank is tipped to raise borrowing costs for the 14th time in a row on Thursday to a fresh 15 year high of 5.25 per cent. There is a chance the monetary authority opts for a larger 50 basis point increase.
Brits are punishing high street lenders who have been accused of not passing on the Bank’s rate rises in full by parking their cash with providers that offer better rates.
“Households deposited an additional £3.4bn with banks and building societies in June. This was largely driven by net flows of +£6.6bn into higher yielding interest-bearing time deposits at the expense of low yielding account[s],” Webb added.
Last week, Barclays, NatWest and Lloyds all in their second quarter results revealed their net interest margin – the difference between what a bank pays savers and charges borrowers – thinned as a result of lifting rates to attract customers’ cash.