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UK credit card and consumer borrowing rising at alarming rate

Credit card borrowing in the UK has grown at its fastest pace since 2005 in the 12 months to July, Bank of England data has shown.

The news further extends the view that some households are struggling to make ends meet as the cost of living soars.

Credit card borrowing rose by a net £740 million on the month, down from a £945 million increase in June but 13% higher than the year before, the biggest annual increase since October 2005.

The average interest rate on credit card borrowing rose to 21.7% in July, the highest since late 1998, the data showed.

Numbers in brief:

  • Individuals borrowed an additional £1.4 billion in consumer credit in July, on net, following £1.8 billion of borrowing in June (Chart 2). This is above the 12-month pre-pandemic average up to February 2020 of £1.0 billion. The additional consumer credit borrowing in July was split between £0.7 billion on credit cards, and £0.7 billion through other forms of consumer credit (such as car dealership finance and personal loans).
  • The annual growth rate for all consumer credit increased to 6.9% in July; the highest rate since March 2019 (7.2%). The annual growth rate of credit card borrowing was 13.0%, while other forms of consumer credit was 4.5%. These were the highest rates since October 2005 (13.7%) and March 2020 (5.6%) respectively.

“The most vulnerable have run out of quick fixes, which is why we continue to see considerable growth in demand for credit,” comments Paul Heywood, chief data and analytics officer at Equifax UK.

Consumer price inflation hit a 40-year high of 10.1% in July and regulators plan to increase household energy tariffs by 80% in October. Further increases are likely in January.

Broader consumer credit, which also includes unsecured personal loans and overdrafts, grew at the fastest annual rate since March 2019, up 6.9%.

Paul Dales, chief UK economist at Capital Economics, said credit growth was more often associated with stronger consumer demand, but high inflation made the numbers harder to interpret.

“As these data are in nominal terms, they are being supported by the rise in prices and are therefore perhaps suggesting that consumer spending is more resilient than it really is,” he said.


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