Consumer spending patterns are remaining stable despite a significant fall in consumer confidence, with households appearing to make purchases now ahead of further price rises to come, UK Finance has stated.

The banking body’s latest Household Finance Review also suggested that house purchase activity has returned to pre-pandemic norms, although the market is likely to experience headwinds from cost of living pressures that will put a brake on demand going forwards.

UK Finance’s research showed that consumer confidence dropped again in the second quarter, particularly in terms of households’ confidence in the economy, which plunged to a reading of -56. This is the lowest reading since at least 1996, below previous lows seen at the start of the pandemic and, before this, the beginning of the global financial crisis.

Despite this sharp drop-off in confidence, however, data suggested that spending on credit and debit cards was strong through Q2. UK Finance said this could reflect a combination of factors, such as price increases which have driven up average spends.

However, the number of transactions has also risen across all sectors of spending. The travel sector saw particularly strong growth – in both the number of transactions and average spend – as demand for foreign holidays, now largely free from previous COVID restrictions, continued to grow.

Despite the escalating cost of living crisis, the UK Finance report also stated that household savings accumulated through the pandemic have stopped growing, although they have yet to show signs of reversal. However, within aggregate figures, the banking body highlighted it is likely that some households, particularly among lower income brackets, are “feeling considerable strain already”.

Director of mortgage distribution at Vida Homeloans, Richard Tugwell, commented: “The scale of the challenge facing Liz Truss as she becomes the UK’s next prime minister is not to be underestimated, and she needs to act fast to address the multitude of challenges that Britain is currently facing.

“Chief amongst these challenges are the spiralling cost of living and energy crunch. While these figures show that there has been relatively robust spending by households across the UK in Q2, this is likely to decline as rising interest rates, fuel, energy, and grocery costs kick in and begin to have a real impact on household budgets.

“With rising mortgage rates and house prices, in addition to increased living costs, brokers will need to work harder than ever to support their clients and find them the right mortgage for their needs as affordability is no doubt going to be stretched, especially for the lower-income families and first-time buyers.”

Proposition director at PRIMIS Mortgage Network, Vikki Jefferies, added: “Although borrowing has dropped for house purchases, we expect remortgage and buy-to-let activity to remain buoyant for the rest of the year.

“With today’s data showing elevated pressures on household budgets, advisers can support consumers by offering a range of flexible products that will enable them to maximise their assets to enhance their finances in the long-term.

“However, given approximately £100bn of mortgages are set to mature by the end of 2022, brokers will have an extremely busy pipeline of business in the coming months, and they will certainly be stretched. It will be vital to provide them with proactive and sustained support.”

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