Credit card borrowing in the UK has increased the most since 2005 – BoE

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A general view of the Bank of England (BoE) building, the BoE has confirmed it will hike interest rates to 1.75%, in London, Britain August 4, 2022. REUTERS/Maja Smiejkowska /File Photo

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  • UK credit card borrowing up 13% YoY, most since 2005
  • Equifax says households struggling with cost of living
  • Interest rates for some new mortgages at their highest since 2012
  • High savings to cushion inflation for wealthier households

LONDON, Aug 30 (Reuters) – Britain’s credit card borrowing rose at the fastest rate since 2005 in the 12 months to July, Bank of England data showed on Tuesday, a potential sign that some households have struggling to make ends meet as the cost of living soars.

Credit card borrowing rose by 740 million pounds ($869 million) in the month, compared to a rise of 945 million pounds in June, but 13% more than the previous year, the largest increase annual since October 2005.

The average interest rate on credit card borrowing rose to 21.7% in July, the highest since late 1998, the data showed.

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“The most vulnerable no longer have quick fixes, which is why we continue to see tremendous growth in demand for credit,” said Paul Heywood, head of data and analytics at the rating agency. of Equifax UK credit, after the release of the data.

Consumer price inflation hit a 40-year high of 10.1% in July and regulators plan to raise home energy prices by 80% in October. Further increases are likely in January.

Broader consumer credit, which also includes unsecured personal loans and overdrafts, grew at the fastest annual rate since March 2019, up 6.9%.

Paul Dales, chief UK economist at Capital Economics, said credit growth was more often associated with stronger consumer demand, but high inflation made the numbers harder to interpret.

“As this data is in nominal terms, it is supported by rising prices and therefore perhaps suggests that consumer spending is more resilient than it actually is,” he said.

Britain’s oldest measure of consumer confidence hit a record low in August, and the BoE predicts rising energy prices in October will push the country into recession. Read more

Goldman Sachs has warned that inflation in Britain could top 22% early next year if gas prices remain high, compared to their baseline forecast for a peak of 14.8%. Read more

However, despite falling confidence, retail volumes have held up quite well so far. Read more

UK credit card interest rates hit highest level since 1998

HIGH SAVINGS, INEQUALLY DISTRIBUTED

Households added £4.3billion to their savings in July – slightly less than the average monthly increase of £4.6billion before the pandemic – suggesting many were not yet changing their financial behavior, Dales said .

In total, households have accumulated an additional £192 billion since the start of the COVID-19 pandemic, but many households have none, Pantheon Macroeconomics estimated.

“As a result, a recession in the fourth and first quarters of next year will only be averted if government support is massively strengthened,” said Pantheon’s UK chief economist Samuel Tombs.

Both candidates to become Britain’s next prime minister promise more help for households, although frontrunner Liz Truss has said her preference is for tax cuts which many economists say won’t do much to help poorer households. poorer.

Surveys in July and early August had suggested that rising costs of living and interest rates were stifling Britain’s previously booming housing market.

Tuesday’s data showed the average interest rate on a new two-year 75% fixed-rate mortgage hit its highest level since September 2012 at 3.51%, up from 1.29% a year earlier. .

However, there was little impact on the number of home purchases. Mortgage approvals for home purchases rose slightly to 63,770 from a downwardly revised June reading of 63,184, beating economists who had predicted a decline to 61,725.

($1 = 0.8516 pounds)

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Additional reporting by Andy Bruce; edited by William Schomberg and Bernadette Baum

Our standards: The Thomson Reuters Trust Principles.

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