- The Omicron variant resulted in a modest slowing in net unsecured lending in December 2021, backing up the EY ITEM Club view that the overall economic impact will be smaller than in previous COVID-19 variants. But, while December marks a low point in net lending, the intensifying squeeze on household finances suggests that the recovery will still be soft.
- The stamp duty holiday is an increasingly distant memory, and housing market activity has now returned to pre-pandemic levels. The combination of stretched affordability and rising interest rates however is limiting any meaningful pickup in activity in the near term.
Martin Beck, chief economic advisor to the EY ITEM Club, says:
“Net unsecured lending fell to £0.8bn in December 2021 from £1.0bn in November, with gross lending also falling as consumers scaled back spending in response to the emergence of the Omicron variant. This represented a firmer outturn than in previous COVID-19 variants, when lockdowns had typically resulted in significant falls in gross lending and consumers made net repayments of unsecured debt.
“Bank of England data on credit and debit card spending suggests that lending flows recovered during January, as the number of COVID-19 cases decreased. The signs suggest that December will represent the low point in lending for the Omicron wave. But the intensifying squeeze on household spending power was demonstrated by December’s increase in household bank deposits being the smallest since April 2019, and this is likely to weigh on the recovery in lending flows.
“Housing market activity has become more stable now the stamp duty holiday is behind us. The rise in prices over the past year has stretched affordability, bringing both mortgage approvals (71,015 in December) and net mortgage lending (£3.6bn) back to the levels seen immediately before the pandemic. With multiple interest rate hikes set to push up debt servicing costs through 2022, the EY ITEM Club expects house price growth to cool.”