Credit card borrowing rises amid consumer debt focus
Inflation is hitting consumer spending.
Credit card borrowing rose again last month as concerns continue to mount over a consumer debt boom.
A fresh report by trade association UK Finance showed that total credit card borrowing increased 7.8% on a year-on-year basis, compared to 7.3% in August.
Among high street banks, credit card lending rose 5.5%.
Annual growth in overall consumer credit edged higher from 1.4% to 1.5% in September, which includes borrowing on credit cards, personal loans and overdrafts.
It comes as households look for ways to cope with added pressure on their budgets caused by surging Brexit-linked inflation.
“Rising inflation continues to put pressure on household budgets which is impacting consumer spending. Consumer credit growth has edged up a little compared to last month, but is in line with annual growth rates over the last year,” UK Finance senior economist Mohammad Jamei said.
Inflation surged to 3% last month, marking its highest level for more than five years.
The data is likely to fuel concerns over growing indebtedness across the UK.
The Bank of England’s Financial Policy Committee (FPC) claimed last month that lenders were “underestimating” the risks of growing household debt.
It said that while the quality of consumer credit has “improved significantly” since the financial crisis, lenders were using the wrong benchmarks.
“Lenders overall are placing too much weight on the recent performance of consumer lending in benign conditions as an indicator of underlying credit quality.
“As a result, they have been underestimating the losses they could incur in a downturn,” the FPC explained.
The FPC said it believes that commercial banks are collectively exposed to potential losses of around £30 billion, representing about 20% of UK consumer credit loans.
That is £10 billion more than previously outlined.
The report also showed that borrowing by businesses slowed in September, as the drop off in household spending hit company confidence.
It said business borrowing had “moderated” over the course of 2017, having slowed the most among wholesale and retail businesses.
Those consumer-facing sectors tend to be most sensitive to changes in household spending.
Mr Jamei added it was creating jitters among UK firms.
“Businesses remain cautious about the future amidst an uncertain economic environment, reflected by their growing deposit activity and a dip in their borrowing growth rate,” he said.
The figures show that non-financial companies’ deposits grew 5.8% on an annual basis, down slightly from 8.2% in August, following the withdrawal of some short-term deposits.
Meanwhile, gross mortgage lending grew to £21.4 billion in September, up 5% from a year earlier, with high street banks accounting for around two-thirds of that lending at £13.7 billion.
It came as the number of home purchase approvals grew 7% to 41,584 in September compared to a year earlier, and was also stronger than the monthly average of 41,006 over the previous six months.
There was 2% annual growth in personal deposits flowing into people’s bank accounts, down from 2.2% a month earlier.
UK Finance, which released the data, is a new body that has taken on a number of activities previously carried out by six industry bodies including the Asset Based Finance Association (ABFA), the British Bankers’ Association (BBA), the Council of Mortgage Lenders (CML), Financial Fraud Action UK (FFA UK), Payments UK and the UK Cards Association.