Consumer credit borrowing saw a significant increase in May 2024, according to the latest data from the Bank of England. The annual growth rate for consumer credit rose to 8.3 percent, with outstanding balances now standing at £1.85 billion. This sharp rise follows a dip in April and highlights ongoing financial pressures on households.
Surge in Consumer Credit
In May 2024, consumer credit borrowing rose sharply to £1.5 billion, up from £0.8 billion in April. This increase was driven by a significant rise in net borrowing on credit cards, which jumped from £0.2 billion to £0.8 billion. Borrowing on other forms of credit, such as personal loans and car finance, also saw a notable increase, rising from £0.6 billion to £0.9 billion over the same period.
Decline in Mortgage Borrowing
The data also revealed a decline in net mortgage borrowing, which fell from £2.2 billion in April to £1.2 billion in May. Additionally, net mortgage approvals for house purchases dropped slightly from 60,800 in April to 60,000 in May, while approvals for remortgaging decreased marginally from 29,900 to 29,600.
Expert Insights
Commenting on the statistics, Simon Trevethick, Head of Communications at StepChange, noted:
“While the increase in consumer credit borrowing will to an extent reflect an upturn in consumer confidence, we know that millions across the country are struggling to make ends meet, many of whom will be turning to credit out of necessity, not choice. Our own research has found that 8.6 million people – that’s one in six of us – has recently borrowed to keep up with essentials.”
Treverthick highlighted the need for government intervention to support struggling households:
“With inflated living costs set to weigh heavily on millions of people’s finances for the foreseeable future, it’s vital the next government has a robust plan to help struggling households become more financially resilient. Actions such as rolling out social tariffs for utilities, urgently addressing drivers of destitution in the benefit system and making the Household Support Fund permanent can help to ensure people on low incomes are better equipped to withstand financial shocks.”
Paul Heywood, Chief Data & Analytics Officer at Equifax, added:
“The latest figures from the Bank of England show a decrease in mortgage lending as the UK continues its bumpy journey back to economic normality. While not yet reflected in today’s data, there are growing signs of economic easing – with inflation finally on target for the first time in almost three years and news of high street lenders cutting mortgage rates. However, beneath the surface affordability pressures may persist as consumers continue to navigate the cost-of-living crisis, adding to already increased reliance on overdrafts and persistent growth in highly utilised credit cards.”
Steve Vaid, Chief Executive of the Money Advice Trust, which runs National Debtline, expressed concern over the rising consumer credit borrowing:
“With consumer credit borrowing on the rise again, it’s clear many households are still relying on credit to plug the gaps in their finances. At National Debtline our advisers are hearing daily from people struggling to keep up with their essential costs, but turning to credit to make up the difference risks problems down the line if repayments aren’t affordable.”
The Path Forward
The increase in consumer credit borrowing underscores the ongoing financial challenges faced by many households. While there are signs of economic recovery, the persistent cost-of-living crisis continues to push people towards credit as a means of managing their finances. To mitigate the long-term impact of rising debt levels, it is crucial for policymakers to implement measures that enhance financial resilience and provide support to those most in need.
