LONDON (Reuters) – British households shunned new borrowing in March and a measure of house purchases plunged as the spread of the coronavirus began to hammer the economy, Bank of England data showed on Friday.
Households repaid 3.841 billion pounds ($4.82 billion) of consumer debt, a lifeblood of the economy, in the largest net repayment since records began, most of it on their credit cards – mirroring a record fall in retail sales in March.
The figures also showed a sharp reversal in the housing market which, like much of retail and other sectors of the economy, has been largely shuttered by the government’s lockdown order that was announced on March 23.
The number of approvals for mortgages plunged to a seven-year low of 56,161 in March, a drop of 24% from February’s six-year high.
Britain’s economy could be heading for its most severe contraction in over 300 years in 2020 as a result of the government’s shutdown of much of normal activity, the country’s budget forecasters said last month.
A survey published on Friday confirmed British manufacturers suffered the biggest fall in output and orders for at least three decades in April.
Separate data showed factory output risks falling by more than half during the current quarter after 80% of manufacturers reported a collapse in orders.
The BoE cut interest rates twice in March to a new low of 0.1% and ramped up its government bond-buying by a record 200 billion pounds. It is expected to hold off on fresh action on May 7 at the end of a scheduled policy meeting.
Howard Archer, an economist with EY Item Club, a forecaster, said consumer confidence was taking a major hit from the coronavirus’s impact on the economy and everyday life, prompting many people to cut back on borrowing.
The BoE data showed growth in consumer credit in the 12 months to March was the slowest in nearly seven years at 3.7%.
Credit card spending fell over the 12-month period for the first time on record, down 0.3%.
“However, a growing number of people may be forced into borrowing more over the coming weeks and months due to losing their jobs or seeing their incomes sharply reduced due to the impact of coronavirus on the economy,” Archer said.
Samuel Tombs, an economist with Pantheon Macroeconomics, said he thought April was likely to show an even bigger shift away from new borrowing by consumers than March, only a third of which was covered by the lockdown.
“With all households seemingly running a very tight ship at present, excess savings should accumulate this year, potentially laying the ground for a strong rebound in spending in 2021, when the virus should no longer be a threat,” he said.
In contrast to households, companies ramped up their borrowing in March. Borrowing by non-financial businesses rose by the most on record as businesses prepared for the looming hit to their cashflows.
The monthly rise in the M4 money supply and M4 lending also hit record highs.