A spike in COVID-19 infections at the end of last year prompted UK businesses and households to pay down debt and hoard cash, according to new data.
Figures published by the Bank of England on Monday show household and business deposits both grew strongly in December. The credit market saw net repayments as the economy turned risk-averse.
Household savings rose by £20.9bn ($28.7bn) in December, the strongest growth since May. Consumer credit appetite was weak, with net repayments of £1bn.
Across 2020 as a whole, consumers paid off £16.6bn of debt, the Bank of England said.
Business deposits rose by £15.8bn in December, compared to a pre-pandemic average of £400m in withdrawals each month.
The rise in both business and household deposits coincided with a spike in COVID-19 infections caused by a new mutation of the virus, known as the Kent strain. Restrictions were in place for much of December and the prime minister announced a return to lockdown at the start of January.
The UK’s mortgage market remained strong, as buyers rushed to secure financing ahead of the end of the stamp duty holiday in March. Mortgage borrowing was £5.6bn in December, broadly unchanged on November. Mortgage approvals across the whole of 2020 rose by 3.7% to 818,500.
“The mortgage market remained hot in December, with house purchase approvals higher than at any point between September 2007 and October 2021, despite falling back from November,” said Samuel Tombs, chief UK economist at Pantheon Macroeconomics.
“Timely indicators, however, suggest that demand has begun to fade, now that time is extremely tight to complete a transaction before the threshold for stamp duty returns to £125,000, from £500,000, at the end of March.”
Businesses borrowed record amounts in 2020, the Bank of England said. Larger companies raised £52.6bn through capital market activity such as share issuance and bond sales — a 610% increase compared to 2019.
Smaller businesses borrowed record amounts from banks. SMEs borrowed £43.3bn in 2020 compared to just £1.4bn in 2019.
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