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UK credit card borrowing soars by most since 2005 as cost-of-living squeeze tightens
Home > Top Stories > UK credit card borrowing soars by most since 2005 as cost-of-living squeeze tightens
Global Banking & Finance Review®
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By Andy Bruce and David Milliken
LONDON (Reuters) – Credit card borrowing in Britain rose last month at the fastest annual rate since 2005, possibly reflecting a worsening cost-of-living squeeze that may now be starting to slow the housing market, Bank of England data suggested on Tuesday.
The BoE said credit card borrowing was 11.6% higher than in April 2021, marking the biggest increase since November 2005.
Overall consumer credit, which includes personal loans and car finance deals, rose by 5.7% in annual terms, the fastest growth since February 2020.
The increase in borrowing came despite business surveys showing signs of a marked slowdown in demand, particularly among consumer-facing companies.
Households were hit last month by a double whammy of surging energy costs and higher taxes. The hit to disposable income – likely the worst since modern records began in the mid-1950s – means Britain is at risk of entering recession later this year.
Last week finance minister Rishi Sunak announced 15 billion pounds ($18.9 billion) of further support for households struggling to meet their bills.
“The solid rise in unsecured borrowing in April suggests that households are using credit to support their spending as the cost of living squeeze has intensified,” said Nicholas Farr, assistant economist at consultancy Capital Economics.
The BoE figures are not adjusted for inflation which hit a 40-year high of 9% in April, so some of the increase in borrowing likely reflects a price effect.
The data also pointed to a possible slowing of Britain’s housing market, which has seen rapid increases in house prices over the past two years.
Lenders approved 65,974 mortgages in April, the smallest total since June 2020 and down from 69,531 in March, the BoE said. A Reuters poll of economists had pointed to approvals of roughly 70,000.
“Higher rates and falling real incomes are likely to dampen demand after a period of loose monetary policy,” said Karim Haji, head of financial services at accountants KPMG UK.
Mortgage lender Halifax reported annual price growth slowed to 10.8% in April after hitting a nearly 15-year high of 11.2% in February.
(Reporting by Andy Bruce; editing by David Milliken)
Consumer credit refers to the amount of money that consumers borrow to purchase goods and services, typically through loans or credit cards. It allows individuals to make purchases without immediate payment.
Credit card borrowing is the act of using a credit card to make purchases or withdraw cash, which must be paid back with interest if not paid in full by the due date.
The cost-of-living squeeze occurs when the prices of essential goods and services rise faster than wages, leading to reduced disposable income for households.
A mortgage is a loan specifically used to purchase real estate, where the property itself serves as collateral for the loan. Borrowers repay the loan over time with interest.
Inflation is the rate at which the general level of prices for goods and services rises, eroding purchasing power. It is typically measured by the Consumer Price Index (CPI).
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