Britons racked up a further £1billion in credit card debt in June as households grappled with soaring costs of living and falling real wages, new data shows.
Credit card borrowing grew at the fastest rate since 2005, while the amount deposited in bank accounts fell sharply, the Bank of England reported.
Overall consumer credit, which includes credit card borrowings, overdrafts, personal loans and car finance, rose by £1.8bn at a rate of 6.5% per year in June, the fastest rate since May 2019.
The annual growth rate of credit card loans was 12.5%. This is the highest rate since a 12.6% increase was recorded in November 2005, the Bank of England said.
Paul Heywood, director of data and analytics at credit reporting firm Equifax, said: “High-income households are increasingly drawing on their savings, reversing a trend seen during the pandemic, while those on low incomes are turning to the credit industry to help them ride out the storm.
“Credit applications are now back to pre-pandemic levels, and as the cost of living crisis continues to spread, this demand is going nowhere.
“Lenders will need to find ways to respond to this demand responsibly and comprehensively, and should, where possible, use data to combat the urge to retreat into the core market segment.”
Karim Haji, Head of UK Financial Services at KPMG, said: “The UK’s major banks reported no major deterioration in credit quality this week, but they are aware of the need to support the most vulnerable customers. vulnerable throughout what will be an extremely difficult second half of the year.
“Meanwhile, reports from other sectors of the economy, such as supermarkets, indicate that people are moderating their spending as much as they can to cope with rising costs.”
Mortgage borrowing fell in June, with the number of approvals granted to homebuyers falling by 2,000 to 63,700, which is below the pre-pandemic 12-month average through February 2020 of 66,700.
The numbers indicate turbulent times ahead, warned Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown: “The pandemic has fueled our savings habits and made us less likely to flash plastic while our need for more space has kept the real estate market red hot.
“However, this is now starting to fall apart as the cost of living crisis has destroyed our savings and we are increasingly turning to credit to meet our day-to-day expenses. It is a surefire recipe for the times hard to come.