UK banks more hesitant about lending to households than any time since financial crisis

Surging interest rates and falling real incomes are delivering the biggest squeeze on consumer living standards in decades, BoE survey shows

Banks are also planning to reduce credit card limits, blaming a gloomy economic outlook. Getty Images

UK banks are more hesitant about lending to households than at any point since the financial crisis more than a decade ago, the Bank of England said in figures that underscore the growing risks for the economy.

The central bank said its quarterly credit conditions survey showed lenders expect to sharply rein in the amount of money they extend for credit cards, car finance and personal loans. It was the most pessimistic banks have been on future credit availability since the survey began in 2007.

Surging interest rates and falling real incomes are delivering the biggest squeeze on consumer living standards in decades, reducing the ability of many households to repay their debts.

The BoE’s gauge tracks the expectations banks have about the availability of unsecured credit to households. That index fell to a reading of minus 50.2 in final three months of 2022, the lowest reading on record and down from minus 17.2 in the third quarter.

Banks are also planning to reduce credit card limits and blamed a gloomy economic outlook for plans to clampdown on unsecured lending to households.

If banks follow through with the sentiment captured in the survey, it would return conditions in the credit market to levels prevailing at the start of the pandemic and also when the global financial crisis rattled markets and triggered a recession.

Credit availability was lower only during the early stages of the coronavirus pandemic, but expectations have never been so negative as the BoE said. The survey measures whether banks expect to rein in lending or not and doesn’t give a gauge for how much they plan to cut credit.

“We’re already struggling with debts like credit cards and loans, and the number of defaults rose in the last three months of the year,” said Sarah Coles, senior personal finance analyst at Hargreaves Lansdown.

“There’s a good chance this will get even worse. Rising rates play their part, but the sheer scale of people’s debts also poses enormous challenges.”

The BoE said lenders reported declining demand from households for mortgages and unsecured borrowing at the end of 2022 as they are squeezed by the highest inflation for four decades.