# UK credit card borrowing rises by most since 2005 – BoE
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2022-08-30
Category: FINANCE
Category URL: https://financedigest.com/category/finance
Meta Title: UK Credit Card Borrowing Soars to Record Levels
Meta Description: Discover the latest Bank of England data indicating a surge in credit card borrowing, with interest rates reaching record levels amid soaring cost of living.
URL: https://financedigest.com/uk-credit-card-borrowing-rises-by-most-since-2005-boehtml

By David Milliken

LONDON (Reuters) – British credit card borrowing grew at the fastest pace since 2005 in the 12 months to July, Bank of England data showed on Tuesday, in a potential sign that some households are struggling to make ends meet as the cost of living soars.

Credit card borrowing rose by a net 740 million pounds ($869 million) on the month, down from a 945 million-pound increase in June but 13% higher than the year before, the biggest annual increase since October 2005.

The average [interest rate](https://www.financedigest.com/ecb-raises-interest-rates-again-cuts-bank-subsidies.html "ECB raises interest rates again, cuts bank subsidies") on credit card borrowing rose to 21.7% in July, the highest since late 1998, the data showed.

The most vulnerable have run out of quick fixes, which is why we continue to see considerable [growth in demand for credit,”](https://www.financedigest.com/addressing-the-credit-gap-to-unlock-economic-growth-in-africa.html "Addressing the credit gap to unlock economic growth in Africa") Paul Heywood, chief data and analytics officer at credit scoring agency Equifax UK, said after the data’s release.

[Consumer price inflation hit](https://www.financedigest.com/uk-consumer-mood-hits-one-year-high-but-financial-gloom-persists.html "UK consumer mood hits one-year high, but financial gloom persists") a 40-year high of 10.1% in July and regulators plan to increase household energy tariffs by 80% in October. Further increases are likely in January.

Broader consumer credit, which also includes unsecured personal loans and overdrafts, grew at the fastest annual rate [since March](https://www.financedigest.com/the-nasdaq-100-on-track-to-have-its-best-week-since-march-2010.html "The Nasdaq 100 On Track to Have its Best Week Since March 2010") 2019, up 6.9%.

Paul Dales, chief UK economist at Capital Economics, said [credit growth was more often associated with stronger consumer demand](https://www.financedigest.com/credit-union-loans-in-high-demand.html "Credit Union Loans in High Demand"), but high inflation made the numbers harder to interpret.

As these data are in nominal terms, they are being supported by the rise in prices and are therefore perhaps suggesting that consumer [spending is more resilient than it really](https://www.financedigest.com/student-finances-exposed-how-do-they-really-spend-their-money.html "Student finances exposed: How do they really spend their money?") is,” he said.

Britain’s longest-running measure of consumer sentiment [hit a record](https://www.financedigest.com/uk-shop-price-inflation-hits-record-8-in-january-brc-2.html "UK shop price inflation hits record 8% in January: BRC") low in August, and the BoE predicts October’s jump in energy prices will push the country into recession.

Goldman Sachs warned that inflation in [Britain could exceed 22% early next year](https://www.financedigest.com/2043-the-year-britain-will-turn-cashless.html "2043: The year Britain will turn cashless") if gas prices stay high, compared with their baseline forecast for a peak of 14.8%.

However, despite the slump in sentiment, [retail sales](https://www.financedigest.com/valentines-day-spending-boosts-british-retail-sales-in-february-brc.html "Valentine’s Day spending boosts British retail sales in February – BRC") volumes have so far held up fairly well.

![](https://www.globalbankingandfinance.com/wp-content/uploads/2022/08/UK-credit-card-interest-rates-rise-to-highest-since-1998.jpg)

HIGH SAVINGS, UNEVENLY SPREAD

Households added 4.3 billion pounds to their savings in July – slightly less than the pre-pandemic [average monthly increase](https://www.financedigest.com/taylor-wimpey-espana-remain-cautiously-optimistic-as-average-selling-price-increases-by-20-4.html "Taylor Wimpey España ‘remain cautiously optimistic’ as average selling price increases by 20.4%") of 4.6 billion pounds – suggesting many were not yet changing their financial behaviour, Dales said.

In total, households have built up an extra 192 billion pounds since the start of the [COVID-19 pandemic](https://www.financedigest.com/condition-monitoring-service-market-buoyant-with-flourishing-power-generation-industry-adoption-exhibits-a-notable-decline-amid-covid-19-pandemic-fmi.html "Condition Monitoring Service Market Buoyant with Flourishing Power Generation Industry; Adoption Exhibits a Notable Decline Amid COVID-19 Pandemic: FMI") but many households have none, Pantheon Macroeconomics estimated.

Accordingly, a [recession across Q4 and Q1 next year will be avoided](https://www.financedigest.com/uk-to-avoid-recession-this-year-but-outlook-still-weak-bcc-says.html "UK to avoid recession this year but outlook still weak, BCC says") only if government support is beefed up massively,” Pantheon’s chief UK economist, Samuel Tombs, said.

Both contenders to become Britain’s next prime minister promise more help for households, although front-runner Liz Truss has said her preference is for tax [cuts which many economists say](https://www.financedigest.com/amazon-ceo-says-job-cuts-to-exceed-18000-roles.html "Amazon CEO says job cuts to exceed 18,000 roles") will not help the poorest households much.

Surveys in July and [early August had suggested that the higher](https://www.financedigest.com/five-reasons-to-start-saving-early-for-higher-education.html "Five Reasons to Start Saving Early for Higher Education") cost of living and interest rates were taking the wind out of Britain’s previously booming housing market.

Tuesday’s [data showed the average interest rate](https://www.financedigest.com/shares-slip-yields-rise-as-u-s-data-sparks-rate-hike-concerns.html "Shares slip, yields rise as U.S. data sparks rate hike concerns") on a new two-year fixed-rate 75% loan-to-value mortgage hit its highest since September 2012 at 3.51%, up from 1.29% a year earlier.

However, there was [little impact on the number of house](https://www.financedigest.com/birmingham-lines-up-post-brexit-housing-plan-with-a-little-help-from-its-friends-in-china.html "Birmingham lines up post-Brexit housing plan, with a little help from its friends in China") purchases. [Mortgage approvals for house purchase edged up to 63,770 from a downwardly revised June](https://www.financedigest.com/uk-mortgage-approvals-hit-lowest-since-june-2020.html "UK mortgage approvals hit lowest since June 2020") reading of 63,184, exceeding economists’ forecasts which had predicted a drop to 61,725.

($1 = 0.8516 pounds)

(Additional reporting by Andy Bruce; editing by William Schomberg and Bernadette Baum)


---
This blog is powered by Superblog. Visit https://superblog.ai to know more.
---