Credit card borrowing rose at the fastest pace since 2006 in the year to March, new figures from the Bank of England show.
Borrowing on plastic jumped 10.6 per cent in the last 12 months, as the cost of living squeeze hits millions of households, the data reveals.
The annual growth rate for total consumer credit borrowing picked up to 5.2 per cent in March, up from 4.5 per cent in February, marking the highest annual rate since February 2020, the BoE said.
Worrying: Credit card borrowing among Britons rose at the fastest pace since 2006 in the year to March, the Bank of England has revealed
Consumer credit encompasses forms of borrowing like credit cards, personal loans, car dealership finance and overdrafts.
Recent research by Creditspring claims credit card debt will hit almost £69billion over the coming six months, marking an 18 per cent jump in total debt, as households struggle to keep up with the surging cost of living, despite making cut backs.
Data from the British Retail Consortium published this week revealed shop prices are up 2.7 per cent on last year, marking their highest rate of inflation since September 2011.
Consumers borrowed an additional £1.3billion in consumer credit in March, on net, of which £800million was new lending on credit cards, the BoE said. Outstanding balances for consumer credit stand at £200.8billion, the BoE added.
Research from the Money Advice Trust, the charity that runs National Debtline and Business Debtline, found that a quarter of adults have used credit to pay for bills or essentials like food, water, rent, council tax and energy in the last three months.
Stats: Consumer credit flows over time, according to the Bank of England
Data: Consumer credit growth rate over time, according to the Bank of England
One in five also expect to have to borrow money to pay for essentials in the next three month, the MAT added.
Joanna Elson CBE, chief executive of the MAT, said: ‘Today’s figures, showing consumer credit borrowing continuing to rise, may be a sign of the mounting pressure on household budgets.
‘Set against a backdrop of soaring energy costs and inflation at a thirty-year high, our concern is that more people are having to turn to credit to plug gaps in their budget. The risk is that this could be storing up problems further down the line if repayments are unable to be met.
‘For households who are already in financial difficulty and whose incomes are unable to keep pace with rising costs, the situation is more urgent. Further support is needed now, including significantly uprating benefits and targeted help for people struggling with rising energy bills.
‘Anyone worried about their finances should seek free, independent debt advice as soon as possible.’
Nicholas Found, a senior consultant at Retail Economics, said the BoE’s data revealed ‘a worrying trend that households are increasingly relying on credit to support their lifestyles, and this is even before the impact of the energy cap rise, spiralling food inflation and the rise in NIC contributions.’
Sarah Coles, of Hargreaves Lansdown, said: ‘To put this in perspective, card borrowing is rising from a real low, and we still have less outstanding on our cards than we did before the pandemic. The rise in card spending was also far lower than in February, so we’re not seeing uncontrolled desperation in action.
‘Instead, this is a steady drip of increased borrowing, month after month, that tends to come alongside rising prices.’
She added: ‘Credit cards feel like a solution in the short term, but when you’re having to pay interest on your debts, it makes it even harder to make ends meet. And while prices continue to rise, stretching your money to cover your bills and your debts is going to get more difficult every month.’
The BoE also revealed that net borrowing of mortgage debt by individuals surged to £7billion in March, up from £4.6billion in February, and remains above the pre-pandemic average of £4.3billion in the 12 months up to February 2020.
Unwillingness to dip into savings growing for some
Households also deposited £6billion into banks, building societies and NS&I accounts in March, according to the BoE.
This was higher than a monthly average of £5.5billion in the year leading up to the first UK lockdowns, it added.
So, while some households are taking on more debt and borrowing more, others have remained unwilling to part with the savings they built up during the pandemic.
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: ‘Households’ continued unwillingness to touch the savings they accumulated during the pandemic suggests that real expenditure is set to fall in quarter two in response to the squeeze on disposable incomes.’
He added: ‘Admittedly, households are borrowing more to support their consumption and have scope to continue to so.
‘The low level of consumers’ confidence also suggests that unsecured borrowing will not pick up much further ahead.’
Banks slow to pass on benefit of rate hike to savers
UK interest rates are currently at 0.75 per cent, and today’s data from the BoE suggests many high-street banks and building societies have been slow to reflect the upward shift in their savings accounts for consumers.
Cole of Hargreaves Lansdown, said: ‘Rate rises started to filter through into savings in March, but not so you’d notice. The average easy access account offered just a quarter of the interest you could get last time the Bank of England base rate was at 0.75 per cent.
‘Despite the Bank of England boosting interest rates by another 0.25 percentage points in March, the average fixed rate savings deal crept up just 0.15 percentage points to 0.92 per cent and easy access rates rose a measly 0.02 percentage points to 0.12 per cent.
Too slow? Some banks have been slow to pass on the benefit of interest rate hikes to savers, the Bank of England said
‘Compare this to just before the pandemic when the Bank of England base rate was also at 0.75 per cent and you could get more than 1 per cent on the average fixed rate savings account, and 0.46 per cent on easy access. It means easy access accounts are offering a quarter of the rate they were last time round.
‘The blame lies with the high street giants, who have so much money sloshing round in their accounts that they don’t need to push up rates to attract more..’
She added: ‘The good news is that things have started looking a bit brighter recently, and the most competitive fixed-rate accounts over one year are now paying over 2 per cent, as they look to build their books.’
Bank of England under pressure to act
With inflation surging and credit card borrowing on the up, all eyes will be on the Bank of England on Thursday as they vote on whether or not to hike UK interest rates again.
Many City insiders think BoE policymakers will increase interest rates from 0.75 per cent to 1 per cent on Thursday, which would mark the highest level seen since early 2009.
It is also expected to once again hike its forecasts for inflation as the Ukraine war compounds a crippling cost-of-living crunch.
Members of the Monetary Policy Committee have already raised rates at each of its past three meetings to try to rein in inflation, which hit, according to official figures, a 30-year high of 7 per cent in March.
The cost crunch is expected to tighten its grip later this year when the energy price cap is revised once again, with warnings inflation could peak at 9 per cent or even double digits in the autumn.