Yahoo Finance Cost of living: Brits taking on debt at fastest pace in five years
UK consumers took on unsecured debt at the fastest pace in almost five years, new data has shown, highlighting the sharp cost-of-living squeeze on household finances.
According to the Bank of England (BoE) on Tuesday, borrowing on credit cards and personal loans jumped £1.9bn ($2.5bn) in February, £1bn more than expected in a Reuters poll of economists.
It was up 200% from just £600m in January and marked the biggest increase since March 2017. Some £1.5bn of this was new lending on credit cards, accounting for the bulk of the increase.
The figures also showed the average annual growth of consumer credit accelerated to 4.4% in February from 3.2% in January, rising at the highest rate since February 2020.
The data suggests that consumers may be turning to borrowing to help pay the bills as inflation surged to a 30-year high of 6.2% last month amid rising food, clothing, energy and fuel costs.
Read more: Deliveroo adds books and printer ink to range in partnership with WHSmith
"The days of people putting record amounts into savings and paying down debts seen during the depths of the pandemic appear well and truly over, and borrowing has made a swift return," David Gibb, chartered financial planner at Quilter, said.
"Given the precarious fiscal circumstances we are currently in, it is not surprising that more Brits are having to make a return to spending on the plastic. However, borrowing in the current circumstances will likely be costly."
Watch: How to prevent getting into debt
Large businesses borrowing from banks rose to £4bn in February, while small and medium sized businesses repaid £500m. Private non-financial companies (PNFCs) redeemed £4.1bn in net finance from capital markets.
The Bank of England also revealed that new mortgage approvals fell to 71,000 last month from a revised 73,800 the month before, suggesting the property market boom may be running out of steam thanks to rising interest rates.
It was, however, above the 12-month pre-pandemic average up to February 2020 of 66,700.
The value of mortgages approved fell to £4.7bn from £5.9bn during the period
“While watching what is going on in the consumer credit market is important, to fully understand the current household debt landscape requires a wider perspective,” StepChange head of policy, research and public affairs Peter Tutton said.
“More and more, what we are seeing is that people experiencing problem debt have problems meeting not just their credit repayments, but also their priority bills.”
Read more: FTSE rises on hopes of Russia-Ukraine ceasefire talks
He added: “We’re convinced that as the year goes on the chancellor is likely to need to find a way to provide more, and more targeted, support for those who are simply unable to absorb the cost of living increases into their household budgets.
“In the meantime, we urge anyone struggling to make ends meet to seek help from a reputable debt advice organisation at an early stage, rather than turning to potentially more harmful coping strategies such as high-cost credit.”
It comes as StepChange Debt Charity’s latest client data report showed a rise in the proportion of people seeking advice who say that cost of living pressure is a reason for their debt.
The cost of living was the fourth most common reason last month, cited by around one in nine clients.
