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Households ramp up credit card debt as spiralling inflation batters finances

File photo dated 30/09/17 of credit cards showing the logos of American Express, Mastercard and Visa, as households piled an additional £1.2 billion onto credit cards as living costs increased and Christmas approached, marking the highest amount since 2004. PA Photo. Issue date: Wednesday January 4, 2023. In total, people borrowed an additional £1.5 billion in consumer credit in November, jumping from £748 million in October, according to Bank of England figures. See PA story ECONOMY Lending. Photo credit should read: Dominic Lipinski/PA Wire - Dominic Lipinski/PA

Spending on credit cards spiked at the fastest rate in almost two decades in November as the cost of living crisis forced families to borrow more.

Credit card debt grew by £1.2bn in November, figures from the Bank of England show, which was the highest monthly increase since March 2004. It brings the total outstanding credit card debt in Britain to £63.6bn.

The increase came even as retail sales fell by 0.4pc in November. The sharp jump came as energy, food and housing costs all continued to climb sharply.

Ashley Webb of Capital Economics said the data was “a sign that households are feeling the pinch from the cost of living crisis and are turning to borrowing to tide them over.”

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Debt charity StepChange said people asking for help were citing the cost of living crisis as the main reason for needing support.

“With financial pressures across the board creating problems for an increasing number of households, there is a real danger that people will increasingly be turning to credit to meet essential spending into the new year and beyond,” said Richard Lane of StepChange.

The surge in credit card borrowing came even before the Christmas rush in December. StepChange said one in twelve people had planned to use credit to pay for festive shopping.

Overall, consumer borrowing, which includes car finance and personal loans, hit its highest level since July. The figure rose by £1.5bn in November, more than doubling from October’s total of £700m.

Ms Webb said borrowing was likely to fall in the months ahead.

“It’s more normal for consumer credit to weaken during economic downturns,” she said. “That’s why we expect consumer credit to soften over the coming year as the recession deepens.”

Mortgage approvals - an indicator of future borrowing - continued to plummet. They fell to 46,100 in November, down from 57,900 in October.

This is the lowest level since June 2020 when in-person house viewings were banned because of the pandemic.