Britons are bracing themselves for a Brexit-related slowdown in 2017 by stashing away cash at increasing rates, according to the latest snapshot from the UK’s high street banks.
Personal deposits grew by 4.8% year-on-year in November, figures from the British Bankers’ Association (BBA) showed, as people prepared for a tougher year of weaker economic growth and lower wage growth.
Over the first 11 months of the year, personal deposits grew by £32.4bn compared with £19.8bn over the same period in 2015.
Rebecca Harding, chief economist at the BBA, said: “A corollary of a low interest rate environment is a growth in deposits and we’ve seen personal deposits, in particular, grow more strongly in recent months as consumers hoard cash in the absence of higher-yielding, liquid investment opportunities.
“This growth in personal deposits may also suggest that consumers are looking to grow their cash reserves against potential economic uncertainties, such as an expectation of lower wage growth.”
The UK economy is expected to slow significantly in 2017 as uncertainty builds about Britain’s future outside the European Union. The International Monetary Fund is predicting growth will slow to 1.1% next year from 1.8% in 2016.
The same BBA report showed mortgage approvals dropped 9% year-on-year in November as the housing market lost momentum at the end of 2016.
Approvals for house purchases fell to 40,659 last month, and were down 4% over the first 11 months of the year.
Howard Archer, chief UK economist at IHS Markit, said the dip in approvals was a sign the housing market would weaken in 2017, as the backdrop for consumers became more challenging.
He said: “We believe the fundamentals for house buyers will progressively deteriorate during 2017 with consumers’ purchasing power weakening markedly and the labour market likely softening. Increasing economic uncertainty is also likely to weigh down on consumer confidence and willingness to engage in major transactions such as buying a house.”
Archer added that house prices were likely to be flat in 2017 overall.
However, there were signs from the BBA report that existing home owners took advantage of the Bank of England’s decision to cut interest rates in August to a record low of 0.25%, as the number of remortgages approved jumped 14% in November compared with a year earlier.
Away from housing loans, the annual rate of growth in consumer credit slowed to 6.4% last month from 7.2% in October. Credit card lending rose by 6%, while personal loans and overdrafts were up by 6.8%.
Harding said: “Consumer credit growth continues to be strong, despite falling back a little in November, reflecting strong retail sales in recent months.
“The reduction in interest rates in August may have boosted remortgaging approvals, with consumers looking to take advantage of the current economic conditions and lock in lower interest rates.”
Borrowing among UK companies outside the financial sector fell by £1.2bn in November, which could be a sign that businesses are reining in investment plans and using internal funds where possible, according to the BBA.
