Annual growth for credit card borrowing reached 11.6% in April
Credit card borrowing is growing at its sharpest rate in seventeen years, the Bank of England said on May 31. Furthermore, analysts are warning that a recession appears highly possible as increasing numbers of households take loans to make ends meet.
The annual growth rate for credit card borrowing reached 11.6% in April – the largest figure since November 2005. The rate for all consumer credit rose to 5.7% in April, from 5.2% in March, growing faster than at any time since just before the pandemic.
The latest data shows a “divided nation”, analysts said, with millions taking loans to buy food while others spend recklessly on treats and luxuries using their credit cards. The Money Advice Trust, the charity that manages National Debtline, reported the Bank of England’s consumer credit figures were “an ominous sign of the mounting pressure on household finances”.
“Using credit to cover essential costs like food and energy is often a sure sign of financial difficulty.”
Jayadeep Nair at credit reference firm Equifax UK stated:
“Prices are rising, interest rates are rising, and a recession looks increasingly likely at some point this year. The government and the Bank of England have taken steps 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 a rise in the number of people struggling to pay bills and pay off existing debts, and much of the demand for new credit is by those looking for a way to ride out the crisis.”
Households are grappling with a rise in energy prices after the cap increased, adding £700 to the average bill. Measures disclosed by the chancellor last week will involve hundreds of pounds in one-off payments being issued to households over the coming months. But, poverty advocates say millions will still strain to pay for food as the prices of household items surge.
UK consumers have now put over £3bn on credit cards in the last three months alone, and an extra £1.6bn on other forms of credit, some of which will have certainly been used to cover bills and fulfill other essential costs.
Individuals borrowed an additional £1.4bn in consumer credit in April, an increase from £1.3bn in March, said the central bank. This was divided equally between £700m extra on credit cards and £700m on other forms of credit such as personal loans and car finance.
UK inflation reached a four-decade high of 9% in April, lifted by the fast rise in energy bills and the intensifying cost of food and transport.
Official figures this week signaled that most of the poorer families were being hurt particularly hard since prices for some low-cost grocery staples such as bread, pasta, and rice were increasing at a very sharp rate than overall inflation.
Andrew Montlake, managing director of the mortgage broker Coreco, said:
“This latest rise in consumer credit will trigger even more alarm bells at the Bank of England. It shows the economic storm clouds are getting darker by the day.”
He added that people would often capitalize on credit and loans if they were optimistic, “but in this case, it’s almost certainly because they are seeking extra cash to cover their bills and put food on their tables”.
Laura Suter, head of personal finance at investment platform AJ Bell, said:
“What the figures show is a divided nation.”
While most consumers were borrowing “to help keep themselves afloat during the cost of living crisis”, a total of £5.7bn was set aside by bank and building society account customers in April, with an extra £600m saved in National Savings and Investments accounts, which altogether was around 15% larger than the average in pre-pandemic times.
The Bank of England also announced that the number of mortgages accepted by UK lenders had fallen to its lowest since June 2021, prompting some analysts to say that this might be an indicator that the housing market was cooling for the first time since it slowed during the early months of the Covid-19 pandemic.
There were 65,974 mortgages accepted in April, a drop from 69,531 in March and 73,220 in January. Economists had forecast an insignificant increase in mortgage approvals, to about 70,000.
Mortgage lenders have been increasing the cost of their deals in the wake of a string of interest rate hikes, and the property website Zoopla said on Monday that signs were revealing that a slowdown was nearing. Its research found that the percentage of sellers lowering their asking price and the time it took to sell a home had both risen.