UK consumer credit growth accelerated to the fastest pace in three years in June as households struggle to cope with the rising cost of living.
According to the latest data from the Bank of England, people borrowed an extra £1.8bn in consumer credit last month, up from a £900m rise in May.
With inflation at 9.4% at a 40-year high, experts said many households were using every form of credit available to pay bills for food and utilities.
Households loaded an extra £1bn onto their credit cards, with another £800m on car dealer finance, personal loans and other consumer credit.
The annual growth rate of all consumer credit rose to 6.5% in June, the highest rate since May 2019, while credit card debt soared 12.5 %, the highest rates since November 2005.
Martin Beck, chief economic adviser at EY Item Club, said the rise in credit card balances was worrying, indicating that borrowers were increasingly unable to pay off their debts at the end of of month
“Furthermore, the pressure on household finances is likely to intensify, particularly if the recent rally in energy futures prices is sustained and inflation rises further.”
Jane Tully, director of external affairs and partnerships at the Money Advice Trust, the charity which runs National Debtline and Business Debtline, said the figures were “a warning sign that for some the pressure is already starting to tell – it”.
He added: “While many households are so far able to absorb the impact of rising prices, others are faced with impossible choices in trying to cover everyday costs. And with a further rise in the prices of energy around the corner, our concern is that more people will have to turn to credit to meet basic needs.”
Paul Heywood, director of data and analytics at credit reference agency Equifax, said there would be worse when households enjoying fixed rates for their utility bills or mortgage payments found they had to pay higher rates when deals end.
“Households with higher incomes are increasingly dipping into their savings, reversing a trend seen during the pandemic, while those with lower incomes are turning to the credit sector to help them weather the storm,” he said.
Credit applications returned to pre-pandemic levels, he said.
The level of house purchases continued to decline in June, the Bank said, after figures showed that mortgage approvals for house purchases fell to 63,700 from 65,700 approved in May.
Shushill Suglani, economist at consultancy CEBR, said: “These numbers are down considerably from the peaks seen during the pandemic and are slowly declining from the pre-pandemic average of 66,700 in the 12 months to February 2020.”
Sign up for the daily Business Today email or follow Guardian Business on Twitter at @BusinessDesk
However, estate agents said a decline in net mortgage debt to £5.3bn in June from £8bn in May would only dampen property price growth and was not a sign that the prices were about to drop.
Almas Uddin, director of Revolution Brokers, said: “The latest mortgage approval figures will be no cause for celebration, but certainly no cause for panic either.
“The preventive pandemic measures implemented by the government to keep the property market running have now faded and we are unlikely to see a boost in the form of new initiatives in 2022,” he said.
“Nonetheless, the current level of mortgage market activity remains there or thereabouts compared to a less frantic but consistently stable housing market prior to the pandemic.”