According to fresh data from the Bank of England, credit card borrowing climbed at the quickest annual rate since 2005 for the month of December.
According to analysts, these numbers are “only the tip of the iceberg” because wealthy households are increasingly dipping into their savings while impoverished households are increasingly relying on loans.
Simultaneously, the amount of money placed into accounts fell precipitously, as concerns about the fast-rising cost of living grew.
Consumer credit, which includes credit card borrowing, overdrafts, personal loans, and auto loans, increased by 6.5% annually in June.
As a result, the annual growth rate of credit card borrowing was 12.5%, the highest rate since November 2005, when it increased by 12.6%.
In June, £1.9bn was deposited into the bank and building society accounts as well as NS&I accounts, which is almost a third of the amount deposited in May.
AJ Bell’s head of personal finance, Laura Suter, described the data as “only the tip of the iceberg.”
She stated, “Once the energy price cap increases again in October and we all use more energy in the winter, these numbers will continue to rise.
Additionally, while some individuals may still have savings to fall back on, if those funds are depleted, more individuals may be forced to turn to debt.
The amount of money saved in the United Kingdom has decreased to its lowest level in more than five years, as many have no money left over after paying their obligations.
Paul Heywood, chief data and analytics officer at the credit information company Equifax, stated that people with higher incomes are delving into their savings, while households with lower incomes are resorting to the credit industry.
“Lenders will need to discover ways to service this demand responsibly and completely, and they should utilize data whenever feasible to combat the tendency to retreat to the prime end of the market.”
Karim Haji, head of financial services for the United Kingdom at KPMG, stated, “This week, major UK banks reported no significant deterioration in credit quality, but they are cognizant of the need to support the most vulnerable customers through the second half of the year, which will be extremely challenging.
In the meantime, indications from other sectors of the economy, such as supermarkets, indicate that consumers are limiting their spending as much as possible in response to rising prices.
It comes as the government unveils the newest cost-of-living support measures, which include a £400 discount on energy bills for the majority of households and further assistance for those deemed vulnerable, such as the elderly and the disabled.
