In July, the UK saw mortgage approvals rise to 65,350, exceeding the expected 64,400. The June figure was also updated to 64,570 from 64,170. Meanwhile, net consumer credit climbed to £1.62 billion, surpassing the forecast of £1.35 billion. The previous amount was revised to £1.47 billion.

Net Mortgage Borrowing Drops

Individuals’ net mortgage borrowing fell by £0.9 billion, bringing the total down to £4.5 billion in July. This change came after a £3.2 billion increase in June, which had pushed net borrowing up to £5.4 billion. On an annual basis, consumer credit growth rose to 7.0% year-over-year, up from 6.8% in June. Today’s mortgage and credit numbers are stronger than anticipated, highlighting a surprisingly resilient UK consumer. This goes against the recent view that the economy was slowing as we move into autumn. The data indicates that demand is still strong, even with higher borrowing costs. The rise in annual consumer credit growth to 7.0% is especially significant as it signals inflation. We saw a similar trend during 2022-2023, when ongoing consumer borrowing increased price pressures. This suggests that inflation may remain higher than the Bank of England prefers.

Challenges for the Bank of England

This new information makes the outlook for the Bank of England’s Monetary Policy Committee more complex. With the Bank Rate held at 4.75% through summer 2025, markets may reevaluate and consider whether another rate hike is possible, especially with the latest July CPI data showing inflation at 3.1%. The likelihood of rate cuts in early 2026 now seems uncertain. For interest rate traders, this points toward a more aggressive approach. We could see selling pressure on short-term Sterling Overnight Index Average (SONIA) futures, leading to higher implied yields. The yield on the 2-year UK government gilt, which reacts quickly to Bank Rate expectations, is expected to rise in the coming sessions. In the foreign exchange market, this data is likely to bolster the British Pound. The possibility of prolonged higher UK interest rates could push the GBP/USD pair above the 1.28 level it has been hovering around. Buying call options on GBP could take advantage of potential upward movement against the dollar or euro. The outlook for UK equities is mixed, providing opportunities in options trading. Strong consumer spending is beneficial for stocks in the domestically-focused FTSE 250, but higher interest rates could pose challenges for the broader market. This contrast suggests increased volatility, making strategies like buying straddles on UK stock indices potentially rewarding. Create your live VT Markets account and start trading now.

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