UK consumers last month increased their credit card loans at the fastest annual rate in 17 years, according to figures published Tuesday, in a sign of the intensification of the cost of living.
Data from the Bank of England showed that the annual rate of credit card loans was 13 percent higher in July than a year earlier.
The jump, the largest since October 2005, comes as wages fail to keep pace with inflation, which has already reached 10 percent, with some investment banks suggesting it could roughly double by the turn of the year.
The numbers are a sign that households are struggling with the rising cost of living, even before households are hit by an 80 percent increase in energy bills. This will come into effect from October 1 and could leave many people with the choice of cutting back or borrowing more.
The data also showed that individuals took on a net £1.4 billion in consumer credit in July, down from £1.8 billion in June, but above the 12-month pre-pandemic average to February 2020 of £1 billion. The extra loans were divided equally between credit cards and other loans, such as car loans.
Thomas Pugh, an economist at the consultancy RSM UK, said the BoE data “suggests consumers are already slamming the shutters against what will almost certainly be an exceptionally rough winter”.
An increase in borrowing is usually associated with consumer discretionary spending on non-essential goods and services. But with inflation at its fastest pace in 40 years, real wages falling and consumer confidence at its lowest level since records began in the 1970s, several economists said it was a sign that households are borrowing more to raise living standards. to enforce.
Paul Dales, UK chief economist at the consultancy Capital Economics, said: “Part of the July consumer credit surge may be because some households are already borrowing to make ends meet.” But he added that the numbers suggested consumer spending “didn’t collapse”.
Separate figures also released Tuesday by debt group StepChange showed that the proportion of new customers citing the cost of living crisis as a reason for debt rose 2 percentage points to 20 percent between June and July.
The proportion of those seeking debt counseling because they were behind on their gas and electricity bills also rose to 26 percent and 30 percent respectively. More than two-thirds had credit card debt.
Figures from the BoE also showed that households were saving less than before the pandemic. Combined net flow into both deposits and national savings and investment accounts was £4.6 billion in July, lower than the average monthly net flow of £5.5 billion during the pre-pandemic 12-month period to February 2020.
“July money and credit data shows that households continue to cut their monthly savings in an effort to maintain their current real consumption levels amid rising inflation,” said Gabriella Dickens, a senior UK economist at the consultancy Pantheon Macroeconomics.
Inflation in the UK is expected to accelerate due to the rise in gas prices following the Russian invasion of Ukraine. Citigroup, the bank, this month forecast that inflation will rise to 18.6 percent in January, while Goldman Sachs suggested it could reach 22 percent.
Dales of Capital Economics said that with the consumer price index rising, “more households will likely need to borrow more to survive” and that “the outlook for consumer credit is weak”.