Credit card borrowing highest for 17 years

Families run up debts to pay for living costs in the latest sign that household finances are under strain

HOUSEHOLDS are running up debts to pay for essentials as the cost of living soars, with credit card borrowing jumping to its highest level in 17 years.

Credit card debt rose by £740m last month compared with June, according to the Bank of England, while debts climbed 13pc compared with a year ago.

This is the biggest annual jump since 2005 and the fifth month in a row where credit card borrowing has grown at double-digit rates.

Households took out an extra £1.4bn on credit cards and unsecured loans in July overall. While this is slightly down on the £1.8bn borrowed in June, it is well above the pre-pandemic average of £1bn a month.

Joanna Elson, chief executive of the Money Advice Trust, said household finances were under “relentless pressure” ahead of an 80pc jump in the energy price cap from October.

While some households were reassessing their spending priorities, Ms Elson said urgent help was needed to help struggling families through the winter. “For many, the options are already running out, with more turning to credit to cover essential needs. And for those who are already in difficulty, the situation is only set to get worse without intervention,” she said.

The Bank of England also said mortgage approvals rose to 63,800 in July, from 63,200 in June. Economists expect approvals to slow in the coming months as interest rates continue to rise.

It said someone with a 25pc deposit for a house secured an average borrowing rate of 3.51pc in July, its highest level since 2012, and a jump from 1.5pc at the end of last year. Savings rates also climbed slightly, although most accounts still pay well below the Bank’s base rate of 1.75pc. The average rate on an instant access account was 0.32pc in July. Tying up money in a fixed-rate bond earned the average saver 1.01pc.

Economists said a slowdown in consumer spending was inevitable as inflation starts to bite. Pantheon Macroeconomics said the UK was headed towards recession unless financial support from the Government was “beefed up massively”.

Gabriella Dickens, senior UK economist, said: “Confidence is on the floor and the proportion of people with no savings has increased steadily this year. The incentive for households to use their savings to pay off debt, instead of supporting their consumption, will grow as interest rates continue to rise. Access to credit also might tighten if the unemployment rate starts to increase soon.”

It came as the British Retail Consortium said the price of food rose at its fastest rate since 2008 this month. Overall shop price inflation surged to a record 5.1pc, up from 4.4pc in July, as food prices rose 9.3pc.

Analysis by the Office for National Statistics suggests about 6m people are using more credit than usual to fund spending. Middle earners are the most likely to spend this way, according to the ONS. It said those earning between £10,000 and £50,000 were more likely to use a credit card to fund purchases than those earning more or less.