A rise in credit card borrowing last month has raised concerns that low-income households are turning to expensive forms of loans to meet rising costs for food, clothing and fuel.
Bank of England figures showed credit card borrowing jumped by £1.5bn in February to push total unsecured lending up 90% from the previous month to 1, £9 billion.
The central bank said the hike pushed the annual growth rate of all forms of unsecured credit from 3.2% to 4.4% – the highest rate of expansion since February 2020 – bringing the total outstanding consumer credit at £199.5 billion.
As shoppers turn to cheaper supermarkets such as Lidl and Aldi to make ends meet and growing numbers of families say they are forced to choose between eating and heating, anti-poverty charities have said it was worrisome that consumers are spending more on credit cards.
Joanna Elson, chief executive of the Money Advice Trust, the charity that runs National debt line and Business line of creditsaid the figures provide ‘an indicator of the underlying challenges households face in coping with the rising cost of living’, as she called on the Chancellor to provide more targeted aid to struggling households .
“Our concern is that more people will be pushed into credit to cover rising bills, which could pile up problems later when refunds are due,” she said.
She added that the lifting of the energy price cap on April 1 meant the pressure on household finances would only get worse in the weeks to come.
“While rebates on council taxes and government energy bills will help some households to a small extent, more targeted support is urgently needed,” she said. “At a minimum, this should include a significant increase in benefits and the introduction of additional targeted support to help people struggling with the sharp rise in their energy bills.”
Some economists have said it is possible that the increase in credit card spending, which followed the lifting of restrictions on the Omicron variant, showed a boost in confidence among consumers before the invasion of Ukraine. by Russia.
Paul Dales, chief UK economist at consultancy Capital Economics, said: “Households are more likely to have had the confidence to borrow and spend a bit more and/or were willing to use borrowing/ savings to smooth out their spending.”
However, Samuel Tombs, the chief economist at consultancy Pantheon Macroeconomics, said separate figures showing a slump in consumer confidence between January and March and a sharp slowdown in mortgage lending, prompted most households to caution.
“The sharp increase in consumer borrowing in February – the largest since April 2018 – likely reflects attempts by households to hold consumption steady at a time when real disposable income is falling sharply, rather than embarking on a spending spree. “, did he declare.
Bank figures also showed consumers were buoyed in their efforts to borrow by lower lending rates in February, despite the central bank’s base rate rising from 0.1% to 0.5% between December and February. Credit card interest rates averaged 18.26%, down 0.29 percentage points, while standard credit loans fell to 6.14% from 6.23% .
Intense competition between mortgage lenders meant that the rise in the base rate did little to change the average fixed rate supply, which rose from 1.58% to 1.59%.
Tombs added that the value of ‘excess savings’ had risen slightly to £186.0bn from £185.7bn in January, showing that households were unwilling to cut savings then that the economic outlook was uncertain.
The Treasury’s independent forecaster, the Office for Budget Responsibility, has predicted that economic growth in the UK will be supported this year and next by consumers spending much of their accumulated savings.
Tombs said the stock of unsecured loans last month was “£26bn below its pre-Covid peak”, so households with no savings should be able to increase their borrowing further.
“We therefore continue to believe that the economy will narrowly avoid slipping into recession this year, despite the bleak outlook for real household incomes,” he added.