Credit card borrowing rose at the fastest pace since 2006 in the year to March, according to new figures from the Bank of England.
The data revealed that borrowing from plastic jumped 10.6 percent in the past 12 months, as cost-of-living pressures affected millions of households.
The Bank of England said the annual growth rate of total consumer credit borrowing rose to 5.2 percent in March, up from 4.5 percent in February, the highest annual rate since February 2020.
Worrying: Credit card borrowing among Britons rose at the fastest pace since 2006 in the year to March, the Bank of England reveals
Consumer credit includes such forms of borrowing as credit cards, personal loans, auto financing, and overdrafts.
Recent research by Creditspring claims credit card debt will reach nearly £69bn over the next six months, representing an 18 per cent jump in total debt, as households struggle to keep up with the rising cost of living, despite cuts being made.
Data from the British Retail Consortium published this week revealed that store prices rose 2.7 percent from a year ago, marking the highest rate of inflation since September 2011.
The Bank of England said consumers borrowed an additional £1.3 billion in consumer credit in March, on net, of which £800 million was new credit card lending. The Bank of England added that the outstanding balances of consumer credit amounted to 200.8 billion pounds.
Research from the Money Advice Trust, the charity that runs the National Debtline and Business Debtline, found that a quarter of adults have used the credit to pay bills or necessities such as food, water, rent, council tax and energy in the past three months.
The stat: Consumer credit flows over time, according to the Bank of England
The data: The growth rate of consumer credit over time, according to the Bank of England
The ministry added that one in five also expects to have to borrow money to pay for necessities in the next three months.
“Today’s numbers, which show continued consumer credit borrowing, may be a sign of increasing pressure on household balance sheets,” said Joanna Elson CBE, CEO of MAT.
“Against the backdrop of rising energy costs and inflation at its highest level in thirty years, our concern is that more people are having to turn to credit to fill gaps in their budget. The risk is that this could lead to even greater stockpiling problems if payments are not made.
For families already in financial difficulty whose incomes cannot keep up with rising costs, the situation is even more pressing. More support is now needed, including significantly increased benefits and targeted assistance for people with higher energy bills.
Anyone concerned about their finances should seek free, independent debt advice as soon as possible.
Nicholas Found, a senior consultant at Retail Economics, said the BoE data revealed ‘a worrying trend of households increasingly reliant on credit to support their lifestyles, and this was even before the impact of the rising energy cap, spiraling food inflation and rising food prices’. In NIC contributions.
Sarah Coles, of Hargreaves Lansdowne, said: ‘To put this in perspective, card borrowing is picking up from a real low, and we still have less premium on our cards than we did before the pandemic. The uptick in card spending was also much lower than it was in February, so we’re not seeing uncontrollable desperation at work.
“Instead, this represents a steady trickle of increased borrowing, month after month, which tends to come along with higher prices.”
She added, “Credit cards seem like a short-term solution, but when you have to pay interest on your debts, it makes it harder to make ends meet. As rates continue to rise, more money to cover your bills and debts will get harder every month.”
The Bank of England also revealed that net borrowing of mortgage debt by individuals rose to £7 billion in March, up from £4.6 billion in February, and still above the pre-pandemic average of £4.3 billion in the 12 months. Until February 2020.
Unwillingness to indulge in the growing savings of some
Households also deposited £6 billion into banks, building societies and NS&I accounts in March, according to the Bank of England.
She added that this was higher than the monthly average of £5.5 billion in the year before the first lockdowns in the UK.
So, while some families are taking on more debt and borrowing more, others have remained unwilling to part with the savings they amassed during the pandemic.
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: ‘The continued unwillingness of households to touch the savings built up during the pandemic suggests that real spending is set to decline in the second quarter in response to pressure on disposable income. ”
He added, “It is recognized that households borrow more to support their consumption and they have scope to continue to do so.
“The low level of consumer confidence also indicates that unsecured borrowing will not rise much in the future.”
Banks are slow to pass on the interest of rate hikes to savers
UK interest rates are currently at 0.75 per cent, and data today from the Bank of England suggests that many major banks and building societies have been slow to reverse the upward shift in consumers’ savings accounts.
Cole of Hargreaves-Lansdowne said: “Rising rates started filtering into savings in March, but that’s not the case you’ll notice. The average easy access account offered a quarter of the interest you could get the last time the BoE base rate was 0.75 in Cent.
Although the Bank of England increased interest rates by another 0.25 percentage point in March, the average fixed-rate savings deal rose just 0.15 percentage point to 0.92 percent, and easy access rates rose 0.02 percentage point to 0.12 percent.
very slow? The Bank of England said some banks were slow to pass on the benefits of rate hikes to savers
Compare this to just before the pandemic when the Bank of England’s 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. This means that easy access accounts offer a quarter of the rate they did last time.
“The blame lies with the Main Street giants, who have so much money flowing into their accounts that they don’t need to raise prices to attract more..”
She added, “The good news is that things are starting to look brighter recently, and the most competitive one-year fixed rate accounts are now paying more than 2 percent as they look to build their books.”
The Bank of England is under pressure to act
With inflation and credit card borrowing on the rise, all eyes will be on the Bank of England on Thursday as they vote on whether or not to raise interest rates in the UK again.
Many people familiar with the city believe that the Bank of England Policymakers will raise interest rates from 0.75 percent to 1 percent on Thursday, the highest level seen since early 2009.
It is also expected to again raise its inflation forecasts as the Ukraine war exacerbates a crippling cost of living crisis.
MPC members have already raised interest rates at each of its past three meetings in a bid to rein in inflation, which, according to official figures, hit a 30-year high of 7 percent in March.
The cost crisis is expected to tighten its grip later this year when the cap on energy prices is revised again, with warnings that inflation could peak at 9 percent or even double digits in the fall.
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