UK credit card borrowing is set to jump almost eight percent to a five-year high in 2022, adding to evidence that a surge in the cost of living is straining household finances.
Demand for consumer credit may climb a further 5.5 percent in 2023 on top of this year’s expected 7.9 percent rise, according to the consultancy EY.
The increase would mark a reversal of the trend during the pandemic when many people stayed at home and didn’t spend money, leading to a 12 percent drop in consumer credit in the past two years, EY said.
Borrowing on charge cards rose 1.5 billion pounds ($1.9 billion) in February alone, the biggest increase since the Bank of England started to keep records in 1993.
Inflationary pressures driven by the war in Ukraine will prompt consumers to turn to credit cards even more to fund spending and cover bills, according to the EY ITEM Club UK Bank Lending Forecast.
The soaring prices of essential goods could create a break on some unsecured loans growth, as some households may be forced to cut spending on non-essential items and expensive products.
Other forms of borrowing could also fade due to cost-of-living pressures. Mortgage lending is set to fall to 3.8 percent this year from 4.3 percent in 2021, while business lending will feel the knock-on effects from supply chain disruption, EY said.
“The current economic pressures, exacerbated by geopolitics, are likely to weigh on appetites for most forms of bank lending, with the exception of credit card borrowing as people rely more on credit to finance essential spending,” said Anna Anthony, UK financial services managing partner at EY.
“If there are silver linings to be found both for consumers and for the firms financing lending activity, it’s that interest rates currently remain historically low.”