Credit card borrowing is rising at its fastest annual rate in 17 years, the Bank of England said on Tuesday, with analysts warning that a recession looks increasingly likely as more households slump. indebted to make ends meet.
The annual growth rate for credit card borrowing reached 11.6% in April, the highest figure since November 2005. The rate for all consumer credit rose to 5.7% in April, from 5.2% in March, rising faster than at any time since just before the pandemic.
Latest data shows a ‘nation divided’, analysts say, with millions borrowing money to buy food while others treat themselves to sweets and luxuries using their credit cards . The Money Advice Trust, the charity that runs National Debtline, said the Bank of England’s consumer credit figures were “a worrying sign of growing pressure on household finances”.
He added, “Using credit to cover essential expenses like food and energy is often a sure sign of financial hardship.”
“Prices are rising, interest rates are rising and a recession looks increasingly likely at some point this year,” said Jayadeep Nair of credit benchmark firm Equifax UK. “The Government and the Bank of England have taken action to temper the full impact of the cost of living crisis… but the measures announced so far will only soften the blow. We have already seen an increase in the number of people struggling to pay their bills and repay existing debts, and much of the demand for new credit is coming from those looking for a way out of the crisis.
Households are grappling with soaring energy prices after the cap was raised, adding £700 to the average bill. Measures announced by the Chancellor last week will mean hundreds of pounds in one-off payments will be distributed to households over the next few months, but poverty campaigners say millions will still struggle to pay for food then as the cost of household items skyrockets.
UK consumers have now invested more than £3bn on their credit cards in the past three months alone, and a further £1.6bn on other forms of credit, some of which will inevitably have been used to cover bills and meet other essential costs.
Individuals borrowed an additional £1.4bn in consumer credit last month, compared to an increase of £1.3bn in March, the Bank said. This was split equally between an additional £700m on credit cards and £700m on other forms of credit such as car finance and personal loans.
UK inflation hit a 40-year high of 9% in April, pushed by soaring energy bills and escalating food and transport costs.
Official figures this week indicated that many of the poorest families were particularly hard hit because the prices of some low-cost staples such as pasta, bread and rice were rising at a much faster rate than the general inflation.
Andrew Montlake, managing director of mortgage broker Coreco, said: “This latest rise in consumer credit will set off even more alarm bells at the Bank of England. This shows that the economic storm clouds are darkening day by day.
He added that people would often take advantage of credit and loans if they were confident, “but in this case it’s almost certainly because they’re looking for extra cash to cover bills and put food on their tables.
Laura Suter, personal finance manager at investment platform AJ Bell, said: “What the numbers show is a nation divided.”
While many consumers were borrowing ‘to stay afloat during the cost of living crisis’, a total of £5.7billion was saved by bank and building society customers in April, with 600 million extra pounds hidden in national savings and investment accounts, which collectively was almost 15% above the pre-pandemic average.
The Bank of England also revealed that the number of mortgages approved by UK lenders had fallen to its lowest level since June 2020, leading some analysts to say it could be a sign the housing market is picking up. was cooling for the first time since it stalled early in the month of the Covid-19 pandemic.
65,974 mortgages were approved in April, compared to 69,531 in March and 73,220 in January. Economists had expected a slight increase in mortgage approvals, to around 70,000.
Mortgage lenders have raised the cost of their transactions following a series of interest rate hikes, and real estate website Zoopla said on Monday that signs were emerging that a slowdown was ahead. His research found that the proportion of sellers reducing their asking price and the time it takes to sell a home both increased.