Consumer credit races ahead as UK households struggle to cope

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UK consumer credit growth in June accelerated at the fastest rate in three years, as households struggle to cope with the rising cost of living.

People borrowed an additional ?1.8bn in consumer credit last month, up from a ?900m increase in May, according to the latest Bank of England data.

With inflation at a 40-year high of 9.4%, experts said many households were using all forms of credit available to them to pay soaring food and utility bills.

Households loaded an extra ?1bn on their credit cards, with another ?800m on car dealership finance, personal loans and other consumer credit.

The annual growth rate for all consumer credit increased to 6.5% in June, the highest rate since May 2019, while credit card borrowing surged 12.5%, the highest rates since November 2005.

Martin Beck, chief economic adviser to the EY Item Club, said the rise in credit card balances was concerning, indicating that borrowers were increasingly unable to clear their debts at the end of the month.

“What’s more, the squeeze on household finances is likely to intensify, particularly if the latest pickup in energy futures prices is sustained and inflation rises even further.”

Jane Tully, director of external affairs and partnerships at the Money Advice Trust, the charity that runs National Debtline and Business Debtline, said the figures were “a warning sign that for some the pressure is already beginning to tell”.

She added: “Whilst many households are so far able to absorb the impact of rising prices, others are facing impossible choices trying to meet everyday costs. And with a further hike in energy prices around the corner, our concern is that more people will have to turn to credit to cover basic needs.”

Paul Heywood, chief data and analytics officer at the credit reference agency Equifax, said there would be worse to come when households enjoying fixed rates for their utility bills or mortgage payments found they needed to pay higher rates when deals ended.

“Higher income households are increasingly dipping into their savings, reversing a trend seen during the pandemic, while those on lower incomes are turning to the credit industry to help them ride out the storm,” he said.

Applications for credit were back to pre-pandemic levels, he said.

The level of house purchases continued to slow in June, the BoE said, after figures showed mortgage approvals for home purchases dropped to 63,700 from the 65,700 approvals in May.

Shushill Suglani, an economist at the CEBR consultancy, said: “These figures are down considerably on the highs seen during the pandemic and are slowly decreasing from the pre-pandemic average of 66,700 in the 12 months to February 2020.”

However, estate agents said a decline in net mortgage borrowing to ?5.3bn in June from ?8bn in May, would only slow property price growth and was not a signal prices were about to fall.

Almas Uddin, director of Revolution Brokers, said: “The latest mortgage approvals figures will bring no cause for celebration, but they’re certainly no cause for panic either.

“The preventative pandemic measures implemented by the government to keep the property market up and running have now worn off and we’re unlikely to see a booster jab in the form of any new initiatives in 2022,” he said.

“Despite this, the current level of mortgage market activity remains there or thereabouts when compared to a less frantic, but consistently steady pre-pandemic property market.”