In July, mortgage approvals in the UK reached 65,350, surpassing the anticipated 64,400.
The previous figure for June was revised to 64,570 from 64,170. Net consumer credit rose to £1.62 billion, exceeding the expected £1.35 billion, with the prior figure revised to £1.47 billion.
Net Mortgage Borrowing Decline
Net mortgage borrowing by individuals dropped by £0.9 billion, falling to £4.5 billion in July. This decline followed a £3.2 billion rise in June, which brought net borrowing to £5.4 billion.
Annual consumer credit growth increased to 7.0% year-on-year. This growth rate was up from 6.8% recorded in June.
Today’s mortgage and credit figures are stronger than we expected, pointing to a surprisingly resilient UK consumer. This challenges the recent narrative that the economy was slowing down significantly heading into the autumn. The data suggests underlying demand remains robust despite higher borrowing costs.
The increase in annual consumer credit growth to 7.0% is particularly important as it is an inflationary signal. We saw a similar pattern during the 2022-2023 period, where persistent consumer borrowing kept upward pressure on prices. This suggests that inflation may prove stickier than the Bank of England would like.
Complicating Bank of England’s Outlook
This new information complicates the outlook for the Bank of England’s Monetary Policy Committee. After holding the Bank Rate at 4.75% through the summer of 2025, markets will now question whether a further rate hike is back on the table, especially with the latest CPI data from July still showing inflation at 3.1%. The possibility of rate cuts in early 2026 now looks less certain.
For interest rate traders, this suggests positioning for a more hawkish outcome. We could see selling pressure on short-term Sterling Overnight Index Average (SONIA) futures, pushing implied yields higher. The yield on the 2-year UK government gilt, which is highly sensitive to Bank Rate expectations, is likely to climb in the coming sessions.
In the foreign exchange market, this data should be supportive for the British Pound. The prospect of higher-for-longer UK interest rates could push the GBP/USD pair above the 1.28 level it has been trading around. We might look at buying call options on GBP to capitalise on potential upside movement against the dollar or the euro.
The outlook for UK equities is more mixed, creating opportunities in options. While robust consumer spending is positive for domestically-focused stocks in the FTSE 250, the threat of higher interest rates could be a headwind for the broader market. This divergence suggests we could see increased volatility, making strategies like buying straddles on UK stock indices potentially profitable.
