Credit card borrowing jumped in June at its fastest annual rate in 17 years, as struggling households appeared to rely on additional borrowing to meet the rising cost of living.
Credit card borrowing rose by £740million month-on-month, 13% more than the previous year, according to Bank of England figures which showed the biggest increase year on year since October 2005.
Analysts said the surge in inflation to 10.1% in July and the threat of an escalation in energy prices over the winter showed the situation was likely to worsen.
On Friday, energy regulator Ofgem said the average annual household electricity and gas bill would rise to £3,549 a year from October, up 80% from April.
Debt charities said the rise in unsecured borrowing showed households were under ‘relentless pressure’ to meet monthly food and energy payments and called on the government to increase benefits to the most hard hit.
Paul Heywood, director of data and analytics at credit rating agency Equifax UK, said: “The most vulnerable no longer have quick fixes, which is why we continue to see tremendous growth in the credit application.”
Broader consumer credit, which also includes unsecured personal loans and overdrafts, grew at the fastest annual rate since March 2019, up 6.9% to $1.42 billion. pound sterling.
Households deposited an additional £4.3bn with banks and building societies in July, compared to £2.6bn in June, indicating that wealthier households have started to build up a large reserve savings to defend against the deterioration of the economic situation.
The Bank of England said borrowing on all forms of consumer credit was lower than in May, when it rose to £1.8bn, but remained above the pre-pandemic average on 12 months to February 2020 of £1 billion.
“Today’s numbers are a further sign of the relentless pressure on household finances,” she said.
“Friday’s confirmation of the huge rise in energy prices will only have added to the concerns of millions of people worried about how they will make ends meet in the months to come.
“For many households, however, options are already running out, and more and more are turning to credit to cover basic needs. And for those who are already struggling, the situation will only get worse without intervention.
Figures covering mortgage approvals for home purchases showed the residential property market had stabilized after falling from last year’s peak when the stamp duty holiday on homes in worth less than £500,000 sent monthly approvals above six figures.
The Bank of England said mortgage approvals rose slightly to 63,770 from a downwardly revised reading of 63,184 in June, beating economists’ forecasts in a Reuters poll for a drop to 61,725.
Martin Beck, chief economic adviser at the EY Item Club, said the pressure on homebuyers meant a dramatic slowdown in house price growth was becoming increasingly likely.
“Increasing pressure on household incomes, deteriorating growth prospects and the prospect of a higher peak in interest rates have increased the risk of a hard landing scenario,” he said. .