Financially squeezed households deposited less money into accounts in May than in April.
Some £5.7 billion was deposited into banks, building societies and NS&I accounts in May, which was down from a combined net flow of £6.3 billion in April, the Bank of England’s Money and Credit report said.
The total was, however, broadly in line with the monthly average seen in the year leading up to the coronavirus pandemic.
A string of Bank of England base rate hikes have taken place in recent months, leading to some savings rates climbing.
Laura Suter, head of personal finance at AJ Bell, said: “The reality is that these average figures hide a split nation, with some households able to stomach the rising price of food, petrol, energy and almost everything else, either by budgeting and cutting costs or because they have sufficient earnings to cover it.
“Those households are also still able to stash money away each month, and with investment markets rocky it’s likely some are parking it in cash rather than diving into markets.
“On the flip side, we have another section of the population who have run through their savings, made all the cutbacks they can and are now turning to debt to settle their bills each month. Budgeting can only take you so far if your income isn’t rising and all of your bills are.
“A bright spot for those who have been able to save money is that the Bank of England’s rate rises have boosted savings rates.
“In May, average fixed-rate savings account rates rose by 16 basis points, up to 1.25%.
“The rates on offer for both one-year and two-year fixed rate bonds hit their highest in more than three years.”
Annual growth in households’ borrowing using consumer credit, which includes credit cards, personal loans, overdrafts, and car finance, remained unchanged in May, at 5.7% – the highest rate since a 5.8% increase in February 2020.
Within this, the annual growth rate of credit card borrowing was 11.2%, and the annual growth rate of other forms of consumer credit was 3.5%, according to the Bank’s report.
In a reflection of borrowing becoming more expensive, the typical rate on interest-bearing credit cards increased to 18.38% in May, from 18.08% in April.
Meanwhile, the number of mortgage approvals made to home buyers, which is an indicator of future borrowing, increased to 66,200 in May, from 66,100 in April.
This is slightly below the 12-month pre-pandemic average up to February 2020 of 66,700.
Jeremy Leaf, a north London estate agent and a former residential chairman of the Royal Institution of Chartered Surveyors (Rics), said: “What’s happening on the ground is that buyers and sellers are inevitably more cautious bearing in mind steep rises in the cost of living and interest rates with probably worse to come.
“Nevertheless, we are seeing few attempts at renegotiation or withdrawal as buyers know in particular the continuing shortage of stock means there will be little alternative.”
Karim Haji, head of financial services at KPMG UK, said: “The data does, unfortunately, confirm the darkening picture emerging of the UK economy as both consumers and businesses face challenges on several fronts, but particularly from rising inflation.”
He added: “While strong demand for housing continues to boost prices, rapidly falling affordability could be a key driver of a slowdown in the near-term, as higher interest rates are passed on to borrowers.
“One useful temperature check will come in the form of the half-year trading updates from the main UK banks at the end of the month. Their statements will be pored over for evidence of confidence or concern about the state of the economy.”
Large non-financial businesses repaid £1.9 billion of bank loans in May, compared with £2.6 billion of borrowing in April.
Small and medium sized businesses (SMEs) repaid £210 million of bank loans in May, which was less than an overall £489 million repayment in April.
Jane Tully, director of external affairs and partnerships at the Money Advice Trust, the charity that runs National Debtline and Business Debtline, said: “Today’s figures, showing a continued high level of consumer credit borrowing, are a worrying sign of the continued strain on UK household budgets.
“At National Debtline we regularly see people relying on credit to cover essential costs such as food, energy and council tax – more often than not it is a sign of financial difficulty.
“With consumer credit borrowing growing over the last 12 months, and rising costs showing no sign of abating, there are real concerns struggling households will find it difficult to repay when the time comes.”