UK credit card borrowing surges as defaults rise: are households spending or struggling?
Britain has recorded the biggest monthly rise in consumer credit since records began in 1993, with households borrowing almost £2.5 billion in August. Credit card borrowing is also rising quickly, and so are defaults.
British households took on almost £2.5 billion of new consumer credit in August, in the biggest monthly increase since records began more than three decades ago.
The unrounded increase was £2.464 billion, according to the Bank of England's latest Money and Credit figures.
Around £1.2 billion came from additional credit card borrowing alone, up from £0.9 billion in July.
At the same time, lenders say credit card defaults are rising.
That creates a difficult question: are households borrowing more because they feel confident enough to spend, or are more people increasingly using credit simply to keep up with everyday costs?
Why is credit card borrowing rising in the UK?
The latest figures look dramatic, but higher borrowing doesn’t automatically mean households are in financial trouble.
People also borrow when they feel confident.
A new car, holiday, home improvements or a large purchase can all increase consumer credit. Someone who expects their income to remain secure may also be more comfortable spreading the cost of something rather than paying for it immediately.
But the speed of growth is difficult to ignore.
The Bank of England says the annual growth rate of consumer credit reached 9.6% in August.
Credit card borrowing was growing even faster, accelerating from 12.6% in July to 13.3% in August.
The effective interest rate on interest-charging credit cards also rose to 21.55%.
“Borrowing itself isn’t necessarily a problem. The warning sign is when credit stops being used for occasional spending and starts becoming necessary to get through an ordinary month.”
Gary Moran, Chief Executive, Wessex Community BankAre households using credit cards for everyday spending?
That is harder to answer from national lending figures alone.
The same £100 added to a credit card could represent a restaurant meal, part of a holiday or a weekly supermarket shop because there wasn’t enough money left in the bank.
Financially, those situations are very different.
Household budgets remain under pressure from food, energy, rent, mortgages, insurance and transport. When income doesn’t quite stretch far enough, a credit card can become a convenient buffer.
A supermarket shop, petrol and an unexpected repair can quietly build into a balance that then carries into the following month.
If it isn’t cleared, last month’s spending becomes this month’s debt — with interest added.
Why are UK credit card defaults rising?
The borrowing figures become more significant when set alongside what lenders are seeing from their customers.
In its latest Credit Conditions Survey, the Bank of England said lenders reported that credit card default rates increased during the three months to the end of August.
Lenders also expect credit card defaults to increase again over the next three months.
Defaults across unsecured lending more generally increased too.
That doesn’t mean most people using credit cards are struggling. Nor does it prove that the increase in borrowing is being driven by financial distress.
But rapidly rising borrowing and rising defaults appearing together deserve attention.
Why UK lenders are tightening unsecured credit
There is another important development happening at the same time.
Banks and other lenders reported that the availability of unsecured credit to households fell during the three months to the end of August.
That leaves an unusual combination.
Consumer borrowing is rising strongly, credit card balances are growing quickly, defaults are increasing and lenders say they are becoming less willing to provide unsecured credit.
Together, those figures paint a more complicated picture than simply saying Britons are spending more.
When does useful borrowing become a problem?
Borrowing can be useful.
It allows people to spread large costs, replace essential items when they need them and manage temporary gaps in cash flow.
The important distinction is between borrowing by choice and borrowing because there is no money left.
Someone putting a holiday on a credit card and clearing the balance quickly is in a very different position from somebody using a card for groceries because their current account is empty.
Both appear as credit card borrowing in national statistics.
Their household finances may be completely different.
Gary Moran said: “You can’t look at a rise in borrowing and automatically conclude that households are in trouble. People also borrow when they feel confident.”
“What concerns us more is persistent borrowing for ordinary living costs, balances that aren’t coming down and people having to use one form of credit to repay another.”
How minimum credit card payments can keep balances high
Credit cards can also make a growing debt problem less obvious because borrowers usually aren’t required to repay the full balance each month.
A relatively small minimum payment can make a large balance appear manageable.
But with interest rates above 20%, repeatedly making only small repayments can mean a significant part of the payment is absorbed by interest rather than reducing the original debt.
The size of somebody’s monthly card payment therefore tells only part of the story.
The more important questions are whether the overall balance is falling, whether new spending is still being added and whether normal household expenses could be covered without the card.
Signs you may be relying on credit cards for everyday costs
Using a credit card isn’t itself a warning sign. But some patterns can suggest borrowing is becoming part of the household's normal income.
- Everyday spending is going on credit: regularly using cards for groceries, petrol, energy or other routine household costs.
- The balance keeps rising: making repayments each month but still owing more overall.
- Debt is being moved rather than reduced: repeatedly using one form of borrowing to repay another without bringing the total amount owed down.
Moving a debt can sometimes make perfect financial sense, particularly if it substantially reduces the interest being charged.
But repeatedly moving borrowing without reducing the underlying balance is different.
The debt hasn’t disappeared. It has moved.
Is rising household borrowing a warning sign?
Not necessarily.
One month of exceptionally high borrowing isn’t enough to conclude that British households are in financial crisis.
There are positive signs in the figures too.
Household deposits with banks and building societies increased by £4.7 billion in August, suggesting households collectively weren’t simply exhausting their savings while piling up debt.
But national averages can hide very different experiences.
One family may be putting thousands of pounds into savings while another is putting its supermarket shopping on a credit card.
Both households appear in the same national statistics.
What happens next will tell us more
The next few months may show whether August was an unusual burst of borrowing or the beginning of a longer shift towards greater reliance on consumer credit.
The figures worth watching aren’t simply how much people borrow.
Credit card balances, default rates and how much unsecured credit lenders are prepared to offer may tell us much more.
Most importantly, the question is whether ordinary household spending is increasingly being financed by debt.
Britain borrowing almost £2.5 billion in a single month makes a striking headline.
Whether that reflects consumers feeling confident enough to spend or households trying to bridge a widening gap between their income and everyday bills is the much more important story.