Credit cards and loans originations are growing at their fastest pace since the start of the pandemic as pressure on household budgets mounts

Lending via credit cards and loans has grown at the fastest rate since the pandemic began in January, new data shows, suggesting the rising cost of living is weighing on household finances.

Britons borrowed an extra £600m in early 2022, around £100m for plastics and the rest through other forms of lending, including bank overdrafts, car financing and loans.

While the total was still below the pre-pandemic average of £1bn, the 3.2% annual growth in consumer credit was the biggest since March 2020, the Bank of England said.

That was more than double the 1.5% increase in consumer credit in December. Credit card lending saw the largest increase, at 6.2%, while other forms of consumer credit rose 2%. Money Advice Trust chief executive Joanna Elson said the surge in consumer credit reflected “increasing pressure” on household budgets.

She said: “Today’s sharp rise in consumer credit may not be alarming in itself – but against the backdrop of general price increases, these figures reflect the growing pressure on many household budgets.

“Borrowing to pay important bills is a clear sign of financial troubles. As food and fuel prices continue to rise and energy costs soar, we fear more people will be in trouble in the coming months.

Paul Heywood, chief data and analytics officer at consumer credit agency Equifax UK, said the Bank of England’s figures reflected its own findings.

“Consumers are tightening their belts, paying less and less and even more defaulting on their loans, especially in consumer credit,” he said.

With more rate hikes expected and the cost of living crisis weighing on consumers, “it’s only a matter of time before the credit sector makes waves,” he added.

UK inflation rose to a near 30-year high of 5.5% in January as the cost of living crisis deepened.

Food prices in the UK are rising to near-record levels and are set to rise further due to supply chain pressures and Russia’s invasion of Ukraine, according to data released today by Kantar.

As inflation rose to 4.3% in February, the cost of savory snacks, beef and cat food soared, while the cost of bacon, beer, beer and spirits fell, the analyst firm said.

The Bank of England is likely to raise interest rates for the third time in a row at this month’s Monetary Policy Committee meeting to keep inflation in check, but it expects inflation to hit 7% by April before gradually normalizing.

While households are borrowing more, they are also saving less, with savings rising by £7.8bn, down from the average monthly savings of £9.4bn last year.

Saving habits developed during the pandemic have not gone away, however, as the figure is still significantly higher than the pre-Covid average of £5.5bn a month saved.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said the data suggested households were cautious in January.

“The value of their liquid assets has risen by £7.8bn, more than the £4.9bn average increase in the two years prior to Covid-19, so the value of ‘excess savings’ has risen,” he noted.

It added: “While this reluctance may be partly due to Omicron, the sharp drop in consumer confidence this year also suggests households will seek to maintain a substantial savings buffer.”