Credit card borrowing jumped in June at its fastest annual rate in 17 years as struggling households appeared to rely on extra borrowing to cope with the escalating cost of living.
Credit card borrowing rose by £740m month on month, 13% higher than the year before, according to Bank of England figures that showed the biggest year on year rise since October 2005.
Analysts said the spike in inflation to 10.1% in July and the threat of an escalation in energy prices rises during the winter showed the situation was likely to worsen.
On Friday the energy regulator, Ofgem, said the average annual household electricity and gas bill would rise to £3,549 a year from October, up 80% since April.
Debt charities said the increase in unsecured borrowing showed households were under “relentless pressure” to meet monthly food and energy payments and called on the government to increase benefits to the hardest hit.
Paul Heywood, chief data and analytics officer at credit scoring agency Equifax UK, said: “The most vulnerable have run out of quick fixes, which is why we continue to see considerable growth in demand for credit.”
Broader consumer credit, which also includes unsecured personal loans and overdrafts, rose at the fastest annual rate since March 2019, up 6.9%, to £1.42bn.
Households deposited an additional £4.3bn with banks and building societies in July, compared with £2.6bn in June, indicating that better-off households have begun to build a significant savings buffer as a defence against the deteriorating economic situation.
The Bank of England said borrowing on all forms of consumer credit was lower than in May, when it rose to £1.8bn, but remained above the 12-month pre-pandemic average up to February 2020 of £1bn.
Joanna Elson, the chief executive of the charity Money Advice Trust, which runs National Debtline and Business Debtline, said targeted help should be a feature of any rescue package.
“Today’s figures are a further sign of the relentless pressure that household finances are under,” she said.
“Confirmation on Friday of the huge hike in energy prices will have only added to the worries of millions of people concerned about how they will make ends meet in the coming months.
“For many households, however, options are already running out, with more turning to credit to cover essential needs. And for those who are already in difficulty, the situation is only set to get worse without intervention.”
Figures covering mortgage approvals for house purchases showed that the residential property market had plateaued after a fall from last year’s peak, when the stamp duty holiday on homes worth less than £500,000 sent monthly approvals above six figures.
The Bank of England said mortgage approvals edged up to 63,770 from a downwardly revised June reading of 63,184, exceeding economists’ forecasts in a Reuters poll for a drop to 61,725.
Martin Beck, the chief economic adviser to the EY Item Club, said the pressure on homebuyers meant a dramatic slowdown in property price growth was becoming increasingly likely.
“The intensifying squeeze on household incomes, deteriorating growth outlook, and prospect of a higher peak for interest rates have increased the risk of a hard landing scenario playing out,” he said.