Britain’s biggest banks say they expect a rise in the number of consumers struggling to repay credit cards and other loans amid growing concern over soaring living costs.
Figures from the Bank of England show that high street lenders expect an increase in the number of defaults on unsecured lending and business loans over the three months to the end of June.
The details from its quarterly “credit conditions” survey of the UK’s biggest banks and credit card providers showed expectations of an increase in demand for consumer borrowing in the months ahead. However, it also suggested lenders were not concerned about losses despite the anticipated rise in default rates.
Paul Heywood, the chief data and analytics officer at Equifax UK, the consumer credit agency, said the figures reflected a worsening situation that had been developing for several months.
“Significant portions of the UK population are falling into financial difficulty, with families at the lower end of the income scale being hardest hit. The pressures of the cost of living crisis are pushing up demand for credit, especially in the unsecured lending and credit card spaces, while the same inflationary pressures, along with rising interest rates, are quelling demand for discretionary borrowing,” he said.
Official figures showed UK inflation soared to 7% in March, the highest rate since 1992, while economists have said the measure for the annual jump in the cost of living is likely to breach 9% this month, the highest since 1982, during Margaret Thatcher’s first government.
The Bank of England is widely expected to raise interest rates when its monetary policy committee meets early next month, with the inflation rate now more than three times its official target of 2%.
Although average wage growth has picked up in recent months, it is failing to keep pace with soaring inflation, and is expected to contribute to the biggest squeeze on household disposable income since records began in the 1950s.
Wealthier households managed to save billions of pounds between them during the pandemic as lockdown kept people away from shops and stopped them taking holidays overseas. However, poorer families endured a bigger financial hit, and are expected to bear the brunt of the cost of living emergency this year.
Sarah Coles, senior personal finance analyst at the financial platform Hargreaves Lansdown, said borrowing was likely get more difficult in the coming months. “Demand for loans and credit cards boomed at the start of this year. With inflation gathering momentum, and eye-watering price rises for many of the essentials, it has forced more of us to borrow to make ends meet.”
Credit card borrowing jumped by £1.5bn in February to £59.5bn, the highest since records began in 1993, stoking concern that low-income households were turning into expensive forms of lending to cope with the rising cost of food, clothing and fuel.
Economists have said the cost of living squeeze will drag down consumer spending later this year, weighing on the economic recovery from Covid. However, figures from the Office for National Statistics (ONS) on Thursday indicated little reduction in appetite for spending so far.
The ONS said UK credit and debit card spending showed a slight increase of 2 percentage points over the seven days to 4 April, including an increase in delayable and social spending.