in

Credit card debt soars as Britons ‘to borrow £100bn’ to cope with cost of living crisis

Credit card borrowing has risen at its fastest rate in 17 years as Britons are expected to borrow £100bn to cope with the cost of living crisis. The Bank of England monthly report showed annual growth of 13 per cent in credit card borrowing in July this year, its highest since October 2005.

It comes as a YouGov survey found that Britons expect to borrow a vast sum over the coming year, with 40 per cent saying that rising prices for fuel, food and energy will force them to seek credit in some form.

More than a fifth of those who expect to have to borrow – the equivalent of 8 per cent of the entire adult population, or 5.5 million people – said that they would do so to cover day-to-day expenses.

As Goldman Sachs warned that inflation could top 22 per cent, Boris Johnson acknowledged that Britain faces “tough” months ahead, but said he wanted to offer a “sense of hope and perspective”.

The prime minister said that more support can be expected from his successor – either Liz Truss or Rishi Sunak – to build on payments worth up to £1,200 per household that were announced by the former chancellor earlier this year, which are now seen as woefully inadequate.

“Whichever of the two candidates gets in next week, what the government is also going to do is provide a further package of support for helping people with the cost of energy,” said Mr Johnson. “What we’ve got to do is get through the tough months – and I’m not going to shrink from this, it is going to be tough in the months to come.”

Tory leadership frontrunner Liz Truss will be expected to deliver more help with the cost of living if she wins next week

But the End Fuel Poverty Coalition warned that the figures suggest that any new plan will come too late for the many families who are already plunging into debt after the cap on domestic energy bills was raised to an average £1,971 earlier this year. The limit is set to increase to £3,549 in October.

Coalition coordinator Simon Francis told The Independent: “People are already talking about how they are going to get through this winter, whether that is by rationing heating – which can have serious health impacts – or by taking on debt.

“Clearly people will turn to credit cards, but they need to be aware that these debts need to be repaid. It is a sign of the desperation people are facing, and the situation has been created by the void that has been allowed to be created by the government.

“We can’t understand why Liz Truss, Rishi Sunak and Boris Johnson can’t get in a room together and work out a plan. The government needs to step in and provide help and provide reassurance that help is on its way. We need proposals very, very quickly.”

Labour Treasury spokesperson James Murray told The Independent: “Working families across the country should not have to use credit cards for basic necessities because the Tory government is refusing to tackle the cost of living crisis.

“The skyrocketing price of energy is at the heart of this problem, and this is what the Conservatives should be tackling instead of playing around with fantasy tax cuts.”

While earlier spikes in credit card debt have been linked to buoyant consumer spending, experts said that the current increase appeared to be driven by the pressure of rampant inflation.

Prime minister Boris Johnson has promised that more help is on the way

Households were also storing less money in accounts, the report showed. The £4.6bn flowing into bank, building society and NS&I accounts in July was up on the previous month, but well below the average £5.5bn a month seen in the year before the Covid pandemic.

Alice Haine, personal finance analyst at investment platform Bestinvest, said: “The rise in consumer credit borrowing reflects just how strained people’s finances are now becoming amid the cost of living crunch.

“Savings built up during the pandemic are being used up, and people are now turning to credit to maintain their standard of living, as soaring inflation, painfully high energy bills and falling real wages eat into disposable incomes.”

YouGov research for financial services review website Smart Money People found that almost three-quarters (71 per cent) said they had less disposable income than usual as a result of the cost of living crisis.

Some 40 per cent said they expected soaring prices to force them to take out some form of credit over the next 12 months – whether through credit card use, loans, overdrafts or other credit arrangements – with average expected borrowing of £5,259.

And 43 per cent of those expecting to borrow more said they were already worried about how they would pay the cash back.

Despite typically charging interest rates well above the cost of bank loans, credit cards were the most popular means to access funds among those questioned, with 34 per cent of borrowers naming them as their preferred option – double the 17 per cent who said they would use an agreed overdraft.

Smart Money People CEO Jacqueline Dewey said it was possible for individuals to accumulate “a worrying level of debt” very quickly, with some “buy now, pay later” schemes not applying credit checks before offering loans.

“We know that many people have very little, if any, savings to help them get through this period of high inflation, and if they have already made cutbacks, they have almost no choice but to turn to credit,” said Ms Dewey.

“Anyone who needs to take out a new credit card, or another form of credit, would be wise to check out the company and the contract and not simply jump at the first provider who will lend to them.”

Mr Francis said that anyone facing difficulties with energy payments should contact their supplier for help first, and should speak to experts such as Citizens Advice about their best course of action.

YouGov questioned 2,086 adults in the UK on 28 and 29 July


Source: UK Politics - www.independent.co.uk


Tagcloud:

Garland Adds Limits at Justice Dept. on Political Activity of Staff

Read the FEC Complaint a Conservative Group Filed Against Biden