Fearful households scrambled to pay back an unprecedented £7.4bn of loans and credit card debt in April but businesses loaded up on borrowing to weather the coronavirus storm, Bank of England figures have shown.
Concerns over a record recession, shuttered shops and cancelled holidays meant Britons cleared a net £5bn off their credit cards and paid back a further £2.4bn of other non-mortgage debt such as personal loans and car finance, the figures showed.
The total net repayment made by consumers was almost twice as high as £3.8bn of debt shed in March, itself a record. While borrowers took out £11.8bn of new consumer debt over the month, this was dwarfed by £19.1bn in repayments. It is a dramatic reversal of a years-long trend which had sent debt surging to record highs.
Josie Dent, senior economist at the Centre for Economics and Business Research, said: “The heightened economic uncertainty combined with a near elimination of spending on items such as holidays has made consumer appetite for debt, for those who can avoid it, extremely limited.”
The frantic repayments pushed annual credit growth into negative territory at -0.4pc, its weakest since August 2012. Overall debt repayments - including mortgages - were down 19pc since pre-pandemic February as households took advantage of leniency from lenders.
That trend was also reflected in falling mortgage repayments to £13.9bn - 26pc down on two months earlier - as lenders extended 2.8m payment holidays to those furloughed or laid off. Net mortgage lending grew by just £0.3bn, the weakest since December 2011, with the housing market pushed into virtual stasis by the lockdown.
Households instead funnelled the cash into savings deposits, stashing £16.2bn away in April - more than three times the average of the previous six months.
Families saved £30bn in April and March combined, but doubts remain over how soon they will be willing to embark on a spending spree even when the economy fully unlocks with unemployment heading towards three million and the worst recession in 300 years looming.
Bank of America Merrill Lynch’s latest consumer survey signalled households may be reluctant to spend, with almost 9m workers furloughed under the Government’s job protection scheme and facing an uncertain future.
Chief economist Rob Wood said: “Consumers remain cautious about the post-lockdown economy. The proportion of furloughed workers expecting pay cuts or job loss continues to rise and respondents still plan to save more.”
In contrast UK businesses took on more borrowing during April as the revenues of hundreds of thousands of firms disappeared in the lockdown. Thomas Pugh, of Capital Economics, said: “Businesses are loading up on debt instead of shedding it and households are deleveraging at the fastest rate on record."
Net lending to businesses was down almost £20bn from a record March, when companies rushed for loans and drew on bank facilities to see them through the crisis, but still well above average at £13.2bn.
Companies also tapped financial markets for £16.1bn over the month - the most since June 2009 - as larger players issued bonds and took advantage of the Bank of England’s £330bn Covid Corporate Financing Facility, raising £7.7bn in short term funding from the support scheme.
HSBC economist Chris Hare said: “For firms, clearly the overall direction of travel is geared towards raising finance to cover costs as revenues dry up.
“The hope is that the need to raise emergency finance will ease as the economy reopens. But it is unclear how quickly demand, and revenues, will bounce back.
"Much of that will depend on household spending prospects. Meanwhile, the prospective tapering of the government's Job Retention Scheme in August, then its planned end in October, will see costs rising again."