This week classical line plot showing the consumer credit growth rate in the UK since 1994. Data comes from the Money and Credit July 2022 report published by the Bank of England on 30 August 2022.
A common way to assess how quickly households are taking on consumer credit is to look at the annual growth rate, for total consumer credit and its two main components:
- Credit cards
- Other forms of consumer credit, such as car dealership finance and personal loans
- In July, UK consumers increased their credit card by 13% with respect to a year before, borrowing at the fastest annual rate since October 2005.
- Other types of credit, such as car finance and secured personal loans, increased by 4.5% year on year.
- Finally, total consumer credit, which also includes unsecured personal loans and overdrafts, increased at the fastest annual rate since March 2019, up 6.9%.
- All credit categories decreased dramatically during the first year of the pandemic crisis — Jan 2020 to Feb 202 — when credit was much cheaper (the BoE base interest rate which is currently 1.75% was 0.1% over that period). After that, all credit categories started to growth back to their pre-pandemic levels.
- It is also worth noticing that credit card growth surpassed other types of credit in November 2021 for the first time since July 2013. Typically, an increase in credit card borrowing is associated with consumers spending in on non-essential goods and services. However, in the current scenario, with inflation running at its highest in decades and real wages falling, it seems to signal that households are struggling with the soaring cost of living, and taking on more debt to cover their deficits.
See the interactive version of this chart here (display is better on a computer rather than a mobile device ).