The UK Consumer lending market hit a 10-year high in October last year growing by 7.2%, but since then, it has failed to kick on to the next level. In fact, since the turn of the year, things have started to slow down with credit experts predicting the continuation of this trend for the rest of 2017.

The big question has thus been what happened to it in the last four months?

Ideally, despite the current slowdown, the UK consumer lending market remains significantly healthy. This is because the Bank of England chose to keep interest rates down following last year’s 50% cut. At 0.25%, the UK interest rate is one of the lowest amongst the developed economies thereby making it an attractive source of credit.

The UK Prime Lending rate remains significantly low at about 1.25% thereby making credit an attractive option for UK consumers. In response to this, banks in the UK have been offering loans at a fixed rate of about 1.4%-about 2.3% to mortgage borrowers. On the other hand, those looking for quick loans in alternative markets such as payday loans and guarantor loans can borrow at 45%- 50% APR. So, generally, the market looks attractive for borrowers.

Since the Bank of England began cutting interest rates about two years ago, the UK consumer debt has been increasing at considerable rates in the process outpacing economic growth.

As demonstrated in the chart below, the UK Household Debt to GDP ratio has been increasing since 2015, but it now appears to have slowed down since the turn of the year. The same thing looks to be happening to the Household Debt to Income ratio, with significant increment over the last few years.

This illustrates that the UK consumers have been taking too much debt over the last few years, which in return has not been matched by the level of income and GDP growths. This could hurt the overall outlook of the country’s economy, which as per statistics has been improving since the introduction of the quantitative easing program. However, there are now fresh fears after Prime Minister Theresa May triggered Article 50 in March this year to begin the two-year countdown to Britain’s separation from the EU.

The move to trigger article 50 was highly expected thereby making the actual event, nothing more than a formality. The decline in consumer lending in the first quarter of 2016 partially illustrates that people were expecting Theresa May to initiate the process of separation from the EU after she won the Article 50 vote at the House of Commons.

In March, mortgage approvals by British Banks were at the lowest level in four months while consumer credit growth continued to slow. This added to signs of a weakening economy in 2017, Reuters reported.

According to data obtained from the British Bankers Association, “banks approved 41,061 mortgages for house purchase last month, down from 42,247 in February.” On the other hand, annual consumer lending growth slowed to 6.1% from 6.5%in February, falling further from October's 10-year high of 7.2%.

The trend in February and March partially contradict what was witnessed in January. The 3-month annualized rate of growth in the consumer lending market in the UK slowed to 9.6% in January from 10.2% in the previous month. This marked the first occasion when the 3-month annualized growth dropped below 10% in 12 months. However, this happened at a time when mortgage approvals increased.

The decline in growth was attributed to the amount being borrowed per person. According to reports, the amount borrowed on cards was responsible for offsetting the highest growth experienced in mortgage approvals since 2008.

Conclusion

In summary, UK consumers increased their borrowing activity thereby pushing the Household Debt to GDP and Income ratios to new levels. Since the economic growth could not match the increased activity in the lending sector, it appears consumers have realized there could be a slowdown in the economy thereby limiting the amount of debt they are taking in 2017.

Another thing that could have affected the lending market is the triggering of Article 50, which now sets the UK at a new path for the next two years as it moves to complete its separation from the EU. Consumers are cautious of the economic situation for the next two years and this could explain why the consumer lending growth rate is slowing in 2017.