The UK banking trend indicates borrowing is getting more expensive

By Puja Sharma

The Bank of England recently released credit card borrowing figures–These monthly statistics on the amount of, and interest rates on, borrowing and deposits by households and businesses are used by the Bank’s policy committees to understand economic trends and developments in the UK banking system.

Creditspring’s research also shows that the UK’s credit card bill is set to jump by £310m after the most recent Bank of England interest rate rise. SMEs repaid £0.4 billion of bank loans in June, more than the £0.2 billion repaid in May and the 15th consecutive month of net repayments. Large non-financial businesses borrowed £1.3 billion of bank loans in June compared to £1.6 billion in repayments in May this year.

Net borrowing of the mortgage debt by individuals decreased to £5.3 billion in June, down from £8.0 billion in May but remains above its 12-month pre-pandemic average up to February 2020 of £4.3 billion. Consumers borrowed an additional £1.8 billion in consumer credit, on the net, of which £1.0 billion was new lending on credit cards.

Private non-financial companies (PNFCs) redeemed £9.4 billion in net finance from capital markets. Within this, there were, on the net, bond redemptions at a record £5.8 billion, equity buybacks of £3.5 billion, and commercial paper redemptions of £0.1 billion. The net flow of sterling money (known as M4ex) decreased to -£2.9 billion in June compared with £20.4 billion in May. Households’ holdings of money saw net flows of £1.5 billion in June, compared with £5.2 billion in May. Household interest-bearing sight deposits decreased to £0.3 billion in June, the lowest since April 2018 (-£1.4 million).

The net flow of sterling lending to private sector companies and households (known as M4Lex) decreased to -£3.8 billion in June, compared to £13.4 billion in May.

Individuals borrowed an additional £1.8 billion in consumer credit in June, on the net, following £0.9 billion of borrowing in May. The additional consumer credit borrowing in June was split between £1.0 billion on credit cards and £0.8 billion through other forms of consumer credit (such as car dealership finance and personal loans).

The annual growth rate for all consumer credit increased to 6.5% in June; the highest rate since May 2019 (6.5%). The annual growth rate of credit card borrowing was 12.5%, while other forms of consumer credit were 4.1%. These were the highest rates since November 2005 (12.6%) and March 2020 (5.6%) respectively.

Neil Kadagathur, Co-Founder and CEO of Creditspring, said, “Although credit card borrowing dipped slightly in July, it has been increasing over the last 12 months at the fastest rate since 2005 – plus it’s likely that we’ll see a spike in the next couple of months as summer holiday spending kicks in and the upcoming energy bill hike puts even more pressure on household bills. Rising interest rates are also being passed onto borrowers meaning borrowing is more expensive than at any point since 2008 – at the precise moment when millions are reliant on borrowing to survive. The credit industry must step up to support borrowers at this crucial moment.”