August 30, 2016 / 8:39 AM / 3 years ago

Cooler lending, company doubts point to Brexit 'slow burn' for economy

LONDON (Reuters) - Britons’ thirst for borrowing eased last month and services firms curbed plans for growth, according to figures that suggested the economy will suffer a slow burn, rather than a sharp hit, from the vote to leave the European Union.

Bank of England lending data on Tuesday offered the first hint of vulnerability in consumer demand - a key engine of British economic growth - after strong high street sales yielded no sign of a Brexit-inspired immediate slowdown.

Lending to consumers rose by 1.2 billion pounds in July, below all forecasts in a Reuters poll of economists and the weakest increase since August 2015. The figure was down from 1.9 billion pounds in June.

A separate survey from the Confederation of British Industry (CBI) showed optimism among Britain’s services companies - which comprise the bulk of the economy - tanked after the June 23 vote to leave the EU. Investment plans in business and professional services firms were at their leanest in more than four years.

BoE policymakers will view the reports as consistent with their view that the economy is set for tougher times as it prepares to leave the EU, despite signs it might sidestep a recession in the next few months.

“Longer-term, a less benign environment for consumers, reflecting a rise in unemployment and the squeeze on incomes from higher inflation, suggests that households’ appetite to borrow will stay relatively subdued,” said Martin Beck, economist at the EY ITEM Club consultancy.

Consumer credit growth slowed for the first time since late 2014 to 10.1 percent year-on-year in July from 10.3 percent in June, the BoE.

Its figures also showed mortgage approvals for house purchases fell to 60,912 last month from 64,152 in June, the lowest since January 2015 and continuing a slowdown since the start of the year.

Net mortgage lending, which lags approvals, rose 2.665 billion pounds in July, compared with a 3.247 billion pound increase in June, the BoE said.

“Going ahead we can expect further softening, as Brexit may have led to potential buyers to adopt a wait-and-see approach,” said Sonali Punhani, economist at Credit Suisse.

Companies are also waiting to see how progress towards leaving the EU unfolds, according to the CBI.

The pace of growth in the three months to August was largely unchanged but expansion plans for companies in business and professional services were the weakest since May 2012, the survey showed.

A couple view properties for sale in an estate agents window in London, Britain August 22, 2016. REUTERS/Peter Nicholls/File Photo

“This is a reminder that the impact from the vote is likely to take time to show up,” said JPMorgan economist Allan Monks.

The BoE figures showed lending to non-financial businesses increased 3.0 percent compared with a year ago, the strongest since at least mid-2012 when records started.

Markit/CIPS purchasing managers indexes due this week will shed more light on how companies have fared since June.

Writing by Andy Bruce; Editing by Richard Balmforth

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