Households increased their borrowing in May for the first time in eight months as the easing of lockdown rules coincided with a fall in loan interest rates.
Figures from the Bank of England showed the first significant credit spending surge since last August, as a run of net repayments by households came to an end in May when £280m more was borrowed on consumer credit than was repaid.
Car finance deals and a personal loans lay behind most of the increase, the central bank said, and came after the rates on new personal loans fell to 5.61%, compared with an interest rate of 7.03% in January 2020.
Credit card borrowers responded to a small increase in interest rates to 17.83% in May by cutting back their borrowing, though not by enough to offset the rise in people taking out car and personal loans.
Within the total figure, credit card lending remained low compared with pre-pandemic levels, with a net repayment of £101m.
The debt charity Stepchange said that some of the average rise in borrowing reflected the needs of poorer households who have suffered a loss of income during the pandemic.
It said 6.3 million people who experienced a fall in income had had to borrow to make ends meet – “a debt overhang that stands in sharp contrast to the experience of households who have been able to deleverage and save during the pandemic”.
The latest consumer credit figure marked a reversal from April, when a net repayment of £228m was recorded, reflecting households paying off more than they borrowed.
Laith Khalaf, a financial analyst at the stockbroker AJ Bell, said consumer borrowing was beginning to return to “the old normal”.
“Latest trends in consumer spending show that old habits die hard, unless there’s a lockdown in force,” he said.
“Borrowing is on the rise, and savings are falling back, as the lifting of social restrictions has prompted consumers to reach for their wallets.
“After a long period of hibernation, it’s natural consumers are enjoying a bit of the old normal, and many have built up a sizeable war chest of savings over the course of the pandemic.”
Martin Beck, a senior economic adviser to the EY Item Club, said: “Consumers took advantage of the further relaxation of restrictions and greater opportunities for social consumption.
“With many consumers having strengthened their balance sheets markedly during the pandemic, we expect to see rebounds in both spending and demand for credit.”
Sign up to the daily Business Today email or follow Guardian Business on Twitter at @BusinessDesk
Separate figures for net mortgage lending bounced back to £6.6bn in May from a low in April of £3bn but were still much lower than the record £11.4bn in March.
The dip followed the delayed announcement by the government of an extension to the stamp duty holiday on homes worth less than £500,000 brought in the last year.
In a sign of future mortgage lending, the number of mortgage approvals made to homebuyers increased slightly in May to 87,500, from 86,900 in April. Approvals have fallen from a recent peak of 103,200 in November, but remain above levels before February 2020.
