Consumer credit rushes as UK households struggle to cope | UK cost of living crisis

UK consumer credit growth in June accelerated to the fastest pace in three years as households struggled to cope with the rising cost of living.

People borrowed an additional £1.8billion in consumer credit last month, compared to an increase of £900million in May, according to the latest data from the Bank of England.

With inflation at 9.4%, its highest level in 40 years, experts said many households were using every form of credit available to them to pay skyrocketing food and utility bills.

Households charged an additional £1bn on their credit cards, along with an additional £800m on car dealer financing, personal loans and other consumer credit.

The annual growth rate of all consumer credit rose to 6.5% in June, the highest rate since May 2019, while credit card borrowing soared 12.5%, highest rates since November 2005.

Martin Beck, the EY Item Club’s chief economic adviser, said rising credit card balances were concerning, indicating borrowers were increasingly unable to clear their debts at the end of the month.

“Additionally, pressure on household finances is likely to intensify, particularly if the latest rise in energy futures prices holds and inflation rises even further.”

Jane Tully, director of external affairs and partnerships at Money Advice Trust, the charity that runs National Debtline and Business Debtline, said the figures were “a warning sign that for some the pressure is already starting to build. to make felt”.

She added: “While many households have so far been able to absorb the impact of rising prices, others are facing impossible choices as they try to meet day-to-day expenses. And with another rise in energy prices around the corner, our worry is that more people will have to turn to credit to cover their basic needs.

Paul Heywood, head of data and analytics at credit reference agency Equifax, said the worst would come when households with fixed rates for their utility bills or mortgage payments find that they had to pay higher rates at the end of the transactions.

“Higher-income households are increasingly tapping into their savings, reversing a trend seen during the pandemic, while lower-income households are turning to the credit sector to help them weather the storm,” he said. declared.

Credit applications have returned to pre-pandemic levels, he said.

The level of home purchases continued to slow in June, the Bank said, after figures showed mortgage approvals for home purchases fell to 63,700 from 65,700 in May.

Shushill Suglani, an economist at consultancy CEBR, said: “These numbers are significantly down from the highs seen during the pandemic and are slowly declining from the pre-pandemic average of 66,700 in the 12 months to February 2020.”

However, estate agents said a decline in net mortgage borrowing to £5.3bn in June from £8bn in May would only slow house price growth and not was not a signal that prices were about to fall.

Almas Uddin, Director of Revolution Brokers, said: “The latest mortgage approvals figures will provide no cause for celebration, but they are certainly no cause for panic either.

“The pandemic preventative measures implemented by the government to keep the real estate market functioning have now dissipated and we are unlikely to see a boost in the form of new initiatives in 2022,” he said. declared.

“Despite this, the current level of activity in the mortgage market remains there or thereabouts compared to a less frenetic but still stable pre-pandemic real estate market.”

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