Households’ non-mortgage borrowing grew in January at the fastest annual rate since the start of the UK coronavirus lockdowns.

The annual growth rate for borrowing using various forms of consumer credit accelerated to 3.2% in January, up from 1.5% in December, the Bank of England said.

It was the highest annual growth rate since March 2020, when the increase was 3.7%.

Consumer credit includes borrowing using methods such as credit cards, personal loans, overdrafts and car finance.

Within the January total, the annual growth rates of credit cards and other forms of consumer credit were 6.2% and 2.0% respectively.

The situation is likely to worsen in the short-term, with further rises in food, petrol and energy prices looking likely

Paul Heywood, chief data and analytics officer at Equifax UK, said that with further interest rate rises expected and a cost of living crisis putting the squeeze on consumers, “it was only a matter of time until the ripples were seen in the credit industry”.

He added: “The data from the (Bank of England) echoes what we’ve observed here at Equifax, that consumers are beginning to tighten their belts, paying down less debt, and a steadily increasing number are even falling behind on their loan repayments, especially in the consumer credit space.”

Martin Beck, chief economic adviser to the EY ITEM Club, said: “The intensifying squeeze on household finances is likely to present a more serious impediment to the economy, and the situation is likely to worsen in the short-term, with further rises in food, petrol and energy prices looking likely.”

The Bank’s Money and Credit report also said that around 74,000 mortgage approvals were made to home buyers in January, marking the highest total since 75,900 approvals were recorded in July 2021.

Moving forward, it's likely that people's borrowing power will wane as lenders take into account these extra costs

Re-mortgaging approvals also increased, to 46,200 in January. The figures only capture re-mortgaging with a different lender. The re-mortgaging total was the highest since 52,300 approvals for re-mortgaging were recorded in February 2020. But the latest re-mortgaging figure was still below the typical monthly totals seen in the run-up to the coronavirus pandemic.

Jason Tebb, chief executive officer of property search website OnTheMarket.com, said: “The signs for the housing market in early 2022 are encouraging. There are still many would-be purchasers who didn’t make a move last year and remain keen to do so.”

Andrew Montlake, managing director of mortgage broker Coreco, said: “Interest rates are rising to contain spiralling inflation, tax hikes are on the way, energy bills are increasing and food prices are also accelerating at a rate of knots.

“Moving forward, it’s likely that people’s borrowing power will wane as lenders take into account these extra costs. However, we are still in an extremely low interest rate environment with competition among lenders fierce, and this will continue to drive a certain level of transactions.”

Mark Harris, chief executive of mortgage broker SPF Private Clients, said: “The very cheapest mortgage rates may be long gone, with several lenders raising rates as the general movement in money market rates is upwards, but that is not putting off buyers.

“Rates remain at comparatively low levels from an historic perspective, so stretched affordability has not yet become an issue for many.”

The sharp decline in consumers' confidence this year also suggests that households will seek to maintain a large savings buffer

Households also deposited £7.8 billion into banks, building societies and NS&I accounts, the latest monthly figures show.

This was lower than the average of £9.4 billion deposited per month over the previous year, although it was still higher than the average of £5.5 billion deposited per month in the run-up to the pandemic.

There was some slightly better news for savers, as the typical interest rate on new deposits held with banks and building societies edged up from 0.36% in December to 0.67% in January.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics said: “Households … were cautious in January; the £7.8 billion increase in the value of their liquid assets exceed the £4.9 billion average rise in the two years before Covid-19, so the value of ‘excess savings’ increased.”

He added: “While this caution likely partly was a consequence of Omicron, the sharp decline in consumers’ confidence this year also suggests that households will seek to maintain a large savings buffer.”