UK credit card borrowing to skyrocket as cost of living crisis hits

Credit card borrowing in the UK is set to jump nearly 8% to a five-year high in 2022, proving that a spike in the cost of living is straining household finances.

Consumer credit demand could rise another 5.5% in 2023 on top of the expected 7.9% rise this year, according to consultancy EY.

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The increase would mark a trend reversal during the pandemic when many people stayed home and didn’t spend money, leading to a 12% decline in consumer credit over the past two years, said EY.

Credit card borrowing rose by 1.5 billion pounds ($1.9 billion) in February alone, the biggest increase since the Bank of England began keeping records in 1993.

Inflationary pressures brought on by the war in Ukraine will cause consumers to turn even more to credit cards to finance their expenses and cover their bills, according to the EY ITEM Club UK Bank Lending Forecast.

Soaring prices for essential goods could dampen the growth of some unsecured loans, as some households may be forced to cut back on spending on non-essentials and big-ticket items.

Other forms of borrowing could also disappear due to cost of living pressures. Mortgage lending is expected to fall to 3.8% this year from 4.3% in 2021, while business lending will feel the ripple effects of supply chain disruption, EY said.

“Current economic pressures, exacerbated by geopolitics, are likely to dampen appetite for most forms of bank lending, except credit card borrowing, as people rely more on credit to fund spending. essentials,” said Anna Anthony, Head of Financial Services UK. partner at EY.

“If there are silver linings to be found both for consumers and for the companies that finance the lending activity, it is that interest rates currently remain historically low.”

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