UK Consumers Enter Energy Shock “On Solid Footing”

The British Pound traded in a narrow range on Monday as fresh data showed UK households and businesses entered the latest energy price shock in relatively strong financial shape.

Recent Bank of England figures point to resilient consumer behaviour, with savings, borrowing and housing activity all holding up ahead of the recent escalation in geopolitical tensions.

Pantheon Macroeconomics said the data paint a reassuring picture of underlying resilience.

“Households and businesses are on solid financial footing heading into the energy price shock,” economists at Pantheon said in a brief on Monday.

Households added £6.6bn to deposits in February, matching January’s pace and exceeding pre-pandemic norms, while consumer credit rose to £1.9bn, signalling continued willingness to spend.

“Consumers appeared comfortable with their levels of savings,” Pantheon noted, adding that this suggests scope for households to cushion the hit from rising energy costs.

Credit card borrowing also remained firm, pointing to limited signs of stress in household finances despite mounting uncertainty.

“Data suggest a confident consumer,” Pantheon said.

Housing market activity also showed tentative strength, with mortgage approvals rising to 62.6k, above expectations and consistent with improving demand indicators earlier in the year.

However, Pantheon cautioned that this resilience may not last.

“We expect housing activity to grind down over Q2,” the consultancy said, citing sensitivity to sentiment and geopolitical developments.

Higher interest rate expectations and weaker confidence are also expected to weigh on affordability, with house price growth forecasts revised lower.

Corporate lending offered another sign of near-term strength, with business borrowing accelerating.

“Corporate credit flows picked up on the back of lower policy uncertainty,” Pantheon said.

But here too, the outlook is turning more cautious.

“We expect the positive run of corporate credit flows to slow,” Pantheon added, as geopolitical risks and rate uncertainty increase.

For the pound, the data underline a key theme: the UK economy entered the current shock from a position of relative strength, but the outlook is deteriorating.

That leaves sterling caught between resilient near-term fundamentals and growing downside risks tied to energy prices, interest rates and global uncertainty.