Is the UK ad­dicted to pay­ing on plas­tic?

Credit card spend­ing is up as sav­ings rates dwin­dle

Shares - - BIG NEWS -

The lat­est monthly fig­ures from UK Fi­nance, a trade as­so­ci­a­tion, show that as a na­tion we are re­ly­ing in­creas­ingly on credit cards rather than cash or debit cards to cover our ev­ery­day out­go­ings.

Spend­ing on credit cards is­sued by high street banks hit £11.3bn last month, an in­crease of 12% on Oc­to­ber last year.

Pos­si­ble rea­sons for us­ing credit cards rather than cash or debit cards are the in­creased con­sumer pro­tec­tion which cards pro­vide and the ac­cu­mu­la­tion of loy­alty points or other ben­e­fits.

The good news is that the to­tal amount of out­stand­ing credit card debt of £44.1bn has barely changed since the start of the year.

On av­er­age we’ve spent £10.5bn a month this year on credit cards and we’ve re­paid £10.4bn a month. Last month we re­paid slightly more than we bor­rowed so the to­tal amount out­stand­ing ac­tu­ally went down.

How­ever, the UK Fi­nance fig­ures don’t in­clude store card bor­row­ing or spend­ing on credit cards is­sued by non-tra­di­tional bank­ing providers like Tesco (TSCO) and Sains­bury’s (SBRY).

Their prod­ucts of­ten have more at­trac­tive in­ter­est rates and every lit­tle beep goes to­wards loy­alty points and vouch­ers to spend in-store.

Nei­ther su­per­mar­ket breaks out credit and store card bal­ances from its to­tal cus­tomer lend­ing but based on their lat­est re­sults it could be as high as £5bn for Sains­bury’s and half as much again for Tesco.

The mount­ing bor­row­ings on cards could have im­pli­ca­tions for the bank­ing sec­tor, if the level of bad debts goes up, and any in­dus­tries re­liant on con­sumer spend­ing. It may also have an in­flu­ence on the Bank of Eng­land’s fu­ture plans for in­ter­est rates.

AJ Bell per­sonal fi­nance an­a­lyst Laura Suter notes the house­hold sav­ings ra­tio is near record lows at just 3.9% – the fourth low­est fig­ure since records be­gan in 1963 ac­cord­ing to the Of­fice for Na­tional Statis­tics. The sav­ings ra­tio is the amount of money house­holds save as a per­cent­age of their to­tal dis­pos­able in­come.

‘As wage growth has re­cently hit a near-10-year high and is higher than in­fla­tion, we would hope to see the rate at which peo­ple are sav­ing start to pick up, while oth­ers will use it an op­por­tu­nity to pay off their costly debt,’ Suter adds.

By Ian Con­way Se­nior Re­porter

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