Struggling families racking up debt as cost of living crisis bites

STRUGGLING families are saving less and borrowing more as the surging cost of living forces households to rack up debt to cover the rising price of essential items.

Individuals’ deposits in banks and building societies rose by £1.5bn in June, according to the Bank of England, with another £400m going into NS&I, the government-backed savings institution. It represents the smallest increase in savings since April 2018, coming after a major jump in deposits during the pandemic, which fell back to more normal levels of around £5bn per month as the economy recovered.

But the cost ofliving crisis is draining families’ ability to save.

At the same time consumer credit jumped as households borrowed £1.8bn last month, double May’s £0.9bn increase in debt and the largest figure since May 2019.

Total debts are still below pre-pandemic levels, as borrowers used periods of reduced spending during lockdowns to repay some of their loans.

Credit card debts total almost £62bn, down from more than £72bn on the eve of the pandemic, but up from a low of £56bn in March last year.

Alison Rose, chief executive of Natwest, said mortgage borrowers have so far continued to repay their home loans despite growing pressures.

She said: “We are really aware that households and families are really worried about the cost of living, we know there are challenges ahead.

“What we are seeing [so far] is very, very low levels of default”.

Bank of England figures for the first three months of the year showed a fall in the number of mortgages in arrears despite the soaring cost of energy, groceries and other household bills.

Since January, inflation has accelerated from 5.5pc to 9.4pc and is expected to peak at more than 11pc in October when the household energy price cap jumps again.

Struggling families are increasingly borrowing to fund essentials including food and fuel, according to debt charity Stepchange.

Richard Lane, of the charity, said: “It’s no surprise that we finally reached the point in June where the rising cost of living became the most commonly mentioned reason for debt among people turning to us for advice.

“People are seeing the financial cushion between their income and their essential spending being squeezed and, in many cases, turning negative.”

Samuel Tombs, of Pantheon Macroeconomics, said the borrowing and saving figures “provide the first convincing evidence that households are prepared to save less and borrow more in order to defend their current level of real expenditure”.

But he said low confidence may mean families cut spending later this year as inflation accelerates.