British consumers have reined in their borrowing on car finance deals amid falling vehicle sales triggered by new emissions tests.
Figures from the Bank of England showed annual growth in consumer credit – on personal loans, credit cards and car finance deals – dropped to 7.7% in September to the lowest level since June 2015.
The latest snapshot revealed the growth in personal borrowing continued to fall from an annual rate of 8.2% in August, having steadily declined from a peak of 10.9% in November 2016.
Threadneedle Street said consumer credit increased by about £800m last month – less than the amount recorded in August – as new borrowing for car finance fell sharply. It said this was “consistent with very weak car registration numbers in September”.
The British motor industry has come under increasing pressure in recent months from several quarters. Weaker consumer confidence and waning appetite for diesel cars has had an impact, while manufacturers worry about the consequences of Britain crashing out of the EU without a deal next March.
UK sales of new cars – which can be seen as a bellwether for the overall health of the British economy – plunged by a fifth in September, in a month that is traditionally a bumper one for sales as consumers rush to buy cars with new number plates.
The Society of Motor Manufacturers and Traders blamed more rigorous emissions testing rules for creating supply problems, resulting in a backlog of deliveries as car manufacturers suffered delays in getting their cars approved.
Despite the slowdown in consumer credit growth, the Bank said the overall figure had been dragged down by the drop-off in car sales, adding that other borrowing, such as personal loans and overdrafts, had remained robust.
Net credit card borrowing was about £500m in September, unchanged on the month before and broadly in line with the average of the previous six months.
Although the overall growth rate dropped to 7.7%, this still remains more than double the rate of growth in average earnings. Official figures this year showed British households spent about £900 more on average than they received in income last year, pushing their finances into deficit for the first time since the credit boom of the 1980s.
The latest figures come after the government announced it would explore the idea of zero-interest loans to help people trapped by problem debt from high-cost providers, such as payday loans and credit cards.
The Treasury believes such a scheme could tackle the issue of problem debt for the 3 million or so Britons who borrow from firms that impose fees and charges above the usual rates of interest.
However, the measure raised eyebrows among some observers because the Treasury has cut benefits for millions of working families, while rolling out universal credit, in a move that many charities believe has pushed more people into debt.
Howard Archer, the chief economic adviser to the EY Item Club forecasting group, said households had also become more cautious as the Bank raises interest rates, after it increased the base rate for personal loans, mortgages and other forms of borrowing to 0.75% in August.
“Even allowing for the impact of weakened car sales, due to special factors, September’s data reinforces the impression that consumers are currently relatively cautious in their borrowing,” he said.