UK consumers stopped borrowing credit cards in May amid fears of a slowing economy due to rising interest rates and the crisis of living.
Monthly figures from the Bank of England show that consumer debt fell to a four-month low of £ 800 million in May, from £ 1.4 billion in April. Half of all loans, £ 400 million, were in the form of credit card loans, and the total amount for May was below the pre-epidemic average of £ 1 billion and below economists’ forecasts.
Nicholas Farr of Capital Economics said, “Further silent growth in unsecured loans in May implies a crisis of life and recent consumer confidence is prompting families to be a little more cautious.” “This adds to the reason consumers feel the cost is struggling and the economy will be very weak in the coming months. The weakness of total unsecured debt indicates that some families are now thinking twice before buying big ticket items.”
The Bank of England has been raising interest rates at its fastest pace since 1990 in the face of a 40-year high inflation in the face of a slowing economy. The bank rate rose 0.25 percentage points to 1 percent in May, the highest level since early 2009. According to the Office for National Statistics.
Mortgages and family loans jumped in May, suggesting that homeowners may aim to lock in lower rates as fiscal policy tightens in the coming months. Mortgage approvals rose to 66,200 in May from 66,100 in the previous month, reflecting still strong demand and rising prices in the housing sector. The total amount of mortgage debt was £ 7.4 billion, up from 2 4.2 billion in April and above the pre-epidemic average.
More than 90 percent of existing mortgage holders will not suffer the immediate effects of high interest rates because they are in fixed-rate borrowing schemes. Karim Haji, head of financial services at KPMG UK, said rising inflation would begin to bite housing demand later this year. “While strong demand for housing continues to drive up prices, rapid declines could be the main driver of the recession in the near term, as higher interest rates go to borrowers,” he said.
Samuel Tombs of Pantheon Macroeconomics said the economy is slowing down as household spending does not keep pace with rising living costs. “Families are still not drawing on their savings or borrowing enough to maintain their actual spending levels in the face of the huge push of their actual disposable income,” Tombs said.
The average interest rate on personal loans fell to 6.49 percent in May, below pre-epidemic levels recorded in February 2020. Credit card rates rose slightly from 18.08 percent in April to 18.38 percent, well below the 2020 level.
Haji said, “Lenders who provide unsecured loans need to be vigilant and they can provide any assistance, such as payment leave or large overdrafts and getting caught up in credit limits.