Borrowing on the up as cost of living crisis bites
HOUSEHOLD borrowing using consumer credit increased in March at the fastest annual pace since before the UK’s coronavirus lockdowns started.
However, while some were taking on more debt, there were also signs that households were unwilling to touch savings built up during the coronavirus pandemic.
The annual growth rate for consumer credit borrowing picked up to 5.2% in March, from 4.5% in February, marking the highest annual rate since February 2020, according to Bank of England figures.
Consumer credit includes forms of borrowing such as credit cards, personal loans, car dealership finance and overdrafts.
Within the latest annual increase, credit card borrowing increased by 10.6%, the Bank’s Money and Credit report said.
Households also deposited £6 billion into banks, building societies and NS&I accounts in March. This was higher than a monthly average of £5.5 billion in the year leading up to the first UK lockdowns.
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: “Households’ continued unwillingness to touch the savings they accumulated during the pandemic suggests that real expenditure is set to fall in quarter two in response to the squeeze on disposable incomes.”
He continued: “Admittedly, households are borrowing more to support their consumption and have scope to continue to so.”
But he added: “The low level of consumers’ confidence also suggests that unsecured borrowing will not pick up much further ahead.”
Karim Haji, head of financial services at KPMG UK, said: “The energy price cap came into effect on April 1 and the consensus is that the cost-ofliving crisis will get worse as the year goes on.
“However, there’s so far little evidence of households running down the stock of savings accumulated during Covid-19, with the squeeze on incomes instead reflected in the rise in consumer credit.
“It was clear from the flurry of trading updates from the big UK banks last week that they are looking to use all the tools in their armoury to help consumers and businesses through a very difficult year.
“That will include payment holidays, increasing overdrafts and revolving credit facility limits, as well as loosening terms when they can. It also makes sense to provide temporary relief to customers.”
StepChange debt charity said a third (33%) of its clients in March had a negative budget – where income is insufficient to meet essential costs – up by four percentage points since January.
Richard Lane, StepChange director of external affairs, said: “High inflation in the cost of basic goods and services, such as energy bills and food, means that those households who already have little ability to flex their spending cannot absorb higher costs.”