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UK credit card debt hits record high as inflation and cost of living bite

UK consumers borrowed a record amount in February, with some economists saying it was a sign of the cost of living crisis hitting wallets even before Russia’s invasion of Ukraine pushed energy prices higher.

Individuals borrowed a net £1.5bn on credit cards in February, the highest monthly amount since records began in 1993, according to data published by the Bank of England on Tuesday.

The figure was more than three times higher than the average of £400mn borrowed in the previous six months and pushed total consumer credit, which includes personal loans and car dealership finance, to £1.9bn net — the highest level in five years.

Consumer borrowing is usually considered a measure of spending growth, but with inflation at a 30-year high and falling consumer confidence, some economists have warned that it was increasingly a sign of consumers running into debt to maintain their standard of living.

“Weak sentiment also indicates that the big rise in consumer borrowing in February likely reflects households attempting to maintain their consumption at a time when real disposable income is falling sharply, rather than them going on a spending spree,” said Samuel Tombs, chief UK economist at consultancy Pantheon Macroeconomics.

He added that the data “suggest that the economic recovery is about to shift down a gear”.

Line chart of monthly change in total sterling net credit card lending to individuals (£bn), showing UK credit card borrowing has soared

The latest money and credit figures “suggest that consumers are increasingly borrowing more to protect their lifestyles from the surge in inflation”, echoed Thomas Pugh, UK economist at the accountancy firm RSM UK.

However, Paul Dales, chief UK economist at consultancy Capital Economics, said it was more likely that the rise reflected households having “the confidence to borrow and spend a bit more”. As a result, he forecast that “the economy may have a bit more near-term momentum than we thought”.

A fortnightly survey by the Office for National Statistics showed last week that 12 per cent of respondents were using credit cards more than usual to cope with increased prices in the first half of March. The proportion rose to 18 per cent for those aged 30 to 49 and to 21 per cent among renters. Another one in 10 people said that they were also borrowing more from family and friends.

Debt charity StepChange on Tuesday reported a rise in the proportion of people seeking advice who said that cost of living pressure was a reason for their debt in February.

Peter Tutton, StepChange’s head of policy, research and public affairs, said: “More and more, what we are seeing is that people experiencing problem debt have problems meeting not just their credit repayments, but also their priority bills.”

He called on UK chancellor Rishi Sunak to “find a way to provide more and more targeted support for those who are simply unable to absorb the cost of living increases into their household budgets”.

BoE governor Andrew Bailey said on Monday that the UK was facing “a historic” hit to real incomes this year, as spiralling energy costs following the Russian invasion of Ukraine contributed to eroding households’ spending power.

The BoE data showed that consumers also deposited less money in bank accounts than before the pandemic. Households deposited £4bn in banks and building societies, less than the £6.3bn average in the previous six months and down from the monthly average of £4.6bn in 2019.

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