UK credit card borrowing soars by most since 2005 as cost-of-living squeeze tightens

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Bank of England (BoE) building seen in London
Buses travel past the Bank of England (BoE) building after the BoE became the first major world's central bank to raise rates since the coronavirus disease (COVID-19) pandemic, London, Britain, December 16, 2021. REUTERS/Toby Melville
  • Consumer credit rises 11.6% y/y, highest rate since 2005
  • Borrowing likely reflects deepening cost-of-living crunch
  • BoE data also points to possible slowing of housing market

LONDON, May 31 (Reuters) - Credit card borrowing in Britain rose last month at the fastest annual rate since 2005, possibly reflecting a worsening cost-of-living squeeze that may now be starting to slow the housing market, Bank of England data suggested on Tuesday.

The BoE said credit card borrowing was 11.6% higher than in April 2021, marking the biggest increase since November 2005.

Overall consumer credit, which includes personal loans and car finance deals, rose by 5.7% in annual terms, the fastest growth since February 2020.

The increase in borrowing came despite business surveys showing signs of a marked slowdown in demand, particularly among consumer-facing companies.

Households were hit last month by a double whammy of surging energy costs and higher taxes. The hit to disposable income - likely the worst since modern records began in the mid-1950s - means Britain is at risk of entering recession later this year.

Last week finance minister Rishi Sunak announced 15 billion pounds ($18.9 billion) of further support for households struggling to meet their bills. read more

"The solid rise in unsecured borrowing in April suggests that households are using credit to support their spending as the cost of living squeeze has intensified," said Nicholas Farr, assistant economist at consultancy Capital Economics.

UK credit card borrowing rises at fastest pace since 2005

The BoE figures are not adjusted for inflation which hit a 40-year high of 9% in April, so some of the increase in borrowing likely reflects a price effect.

The data also pointed to a possible slowing of Britain's housing market, which has seen rapid increases in house prices over the past two years.

Lenders approved 65,974 mortgages in April, the smallest total since June 2020 and down from 69,531 in March, the BoE said. A Reuters poll of economists had pointed to approvals of roughly 70,000.

"Higher rates and falling real incomes are likely to dampen demand after a period of loose monetary policy," said Karim Haji, head of financial services at accountants KPMG UK.

Mortgage lender Halifax reported annual price growth slowed to 10.8% in April after hitting a nearly 15-year high of 11.2% in February. read more

Reporting by Andy Bruce; editing by David Milliken

Our Standards: The Thomson Reuters Trust Principles.

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