- Net unsecured lending returned to positive territory in May, which should mark the start of a period of stronger consumer demand, supported by the relaxation of restrictions and households making use of their strong balance sheets
- Mortgage approvals remained high relative to post-financial crisis norms, with the stamp duty holiday likely to be a key factor. As the stimulus measure comes to an end, the EY ITEM Club expects activity to cool, but the risk of a significant correction in the housing market looks small.
Martin Beck, senior economic advisor to the EY ITEM Club, says:
“Data from the Bank of England for lending to households in May revealed the first positive reading for net unsecured lending for eight months. This reflected a strong increase in gross lending, which rose to its highest level since the pandemic reached the UK, as consumers took advantage of the further relaxation of restrictions and greater opportunities for social consumption.
“Though the lifting of remaining restrictions has been postponed until 19 July, the EY ITEM Club does not expect this to represent much of a hinderance to the rebound in consumer demand. With many consumers having strengthened their balance sheets markedly during the pandemic, the EY ITEM Club expects to see rebounds in both spending and demand for credit.
“Housing market activity has cooled relative to the start of this year, but mortgage approvals of 87,500 in May were still well ahead of the 2010-2019 average of 61,000. May’s total is likely to have been boosted by buyers seeking to complete before 30 June, before which no stamp duty will be payable on the first £500,000 of the purchase price. As the Government’s stimulus measure is gradually phased out – the threshold for paying stamp duty will be £250,000 from July-September and will then revert to its pre-pandemic level of £125,000 – demand should soften. But the improved economic outlook, particularly the prospect of a lower peak in unemployment, means the odds of a significant correction in the housing market looks small.”