A sudden slowdown in consumer borrowing in the month of March has raised concerns among economists and investors who had anticipated a rise in interest rates this month.
Typically, an indication of a growing economy, now a question mark now hangs over whether the Bank of England will go ahead with its predicted interest rate rise when its Monetary Policy Committee meets next week, according to the BBC.
This uncertainty comes as Bank of England figures showed that consumers’ unsecured borrowing halted from a 9.4% annual rise in February to an 8.6% increase in March.
“The lowest monthly figure since late 2012”
Ed Conway, Economics Editor at Sky has highlighted the scale of the drop in customers borrowing on credit cards and unsecured loans, explaining that it’s been six years since we’ve seen such a low.
While we might assume that less borrowing on credit cards is a positive sign, Conway indicates that the nature of the drop is worrying, since consumer spending is a key driver in a growing economy.
“For the past three years, the amount we’re adding to our unsecured borrowing … has been consistently over a billion pounds a month. In March, that suddenly fell to just £254m.”
“This is the lowest monthly figure since late 2012 when the economy was facing the threat of an imported slump from the euro crisis.”
‘The Beast from the East’
Commentators note that the month of March witnessed ‘The Beast from the East,’ when much of the country ground to a halt.
This severe weather pattern is likely to have kept many would-be shoppers at home instead of out on the high street making purchases on their credit cards.
Ed Conway at Sky said: “It is quite probable that at least some of the fall is down to the consequent drop in consumer activity as people stayed home.
“Then again, it also fits in with a broader picture, of an economy which is starting to lose some momentum.”
Is manufacturing slowing too?
While consumer spending is an indicator of a buoyant economy, so too is manufacturing and manufacturing growth was also slower than expected for the month of March, according to a survey from Markit/CIPS.
The BBC reported that “The latest manufacturing purchasing managers’ index from Markit/CIPS fell to a 17-month low of 53.9 in April from 54.9 the month before, although a figure above 50 still indicates the sector is expanding.”
Will there be a rise in interest rates?
According to Conway it wasn’t long ago that investors, feeling positive about the economy, expected a 100% chance of a rise in interest rates but he now notes:
“Broadly speaking, stronger growth tends to mean more inflation, which pushes the Monetary Policy Committee to lift the cost of borrowing.”
“Now, the probability has fallen to around 15%.”
The BBC also acknowledges the ‘series of lacklustre economic data,’ that raises the question of whether the Bank of England will go ahead with an interest rate rise,’ calling further into question what the outcome will be next week.