Credit card borrowing rose by the largest margin for three decades in February, as the UK’s cost-of-living crisis deepened.
The increase – of £1.5bn – marked a sharp change following gradual rises in net credit card lending during the past 12 months, according to data published by the Bank of England.
In the right conditions, increased credit card borrowing is viewed as a sign of a booming economy, with bullish consumers boosting their discretionary spending. But consumer confidence is currently at its lowest point since early in the Covid-19 pandemic, prompting fears that borrowing is instead being used by struggling families to cover the costs of essential items.
Other indicators also suggest that households are resorting to increased borrowing to cover soaring living costs, even before the energy price cap increases to £1,971 (up £693) on 1 April.
In the latest survey from the Office for National Statistics, one in ten Britons said they were relying on credit cards, loans and overdrafts more than a year ago with inflation at its highest rate since 1992 (6.2 per cent) due to an increase in the cost of living. In total, 83 per cent of Britons reported a rise in their cost of living between February and March.
Despite the rise, overall credit card borrowing remains below pre-pandemic levels, since Covid-19 led consumers to dramatically reduce spending on non-essential items. In fact, the Office for Budget Responsibility estimates that UK households accumulated £230bn in “excess” savings during the pandemic.
Prior to the surge in inflation, it was hoped that this reserve would fuel the UK’s post-Covid-19 recovery. Instead, low consumer confidence suggests households may hold on to their savings for a while yet.
Content from our partners
Related
