Figures show consumer credit rose by 8.3% in the year to November, with borrowing on credit cards up by £411m

Consumer borrowing on credit cards, loans and overdrafts is growing at its fastest rate since before the financial crisis, according to Bank of England figures that brought further warnings over the state of UK household finances.

Unsecured consumer credit was up 8.3% in the 12 months to November 2015, the Bank’s figures show, with consumers borrowing an additional £1.5bn in November. This was compared to an average increase of £1.2bn over the previous six months. The growth rate was the highest since February 2006.

Debt charities said they were concerned about the increase, which has driven the level of outstanding consumer credit to £178bn.

Joanna Elson, the chief executive of the Money Advice Trust, the charity that runs the National Debtline advisory service, said: “Increased borrowing is to be expected in an economy that is recovering – but such steep rises in recent months are a cause for concern.

“Many households will be able to handle this extra borrowing – but many will not, and we are expecting an increase in debt problems in the new year as a result.”

The charity’s research suggests that nearly six million people are likely to fall behind financially in January, and that more than one in three put Christmas spending on credit.

The Bank of England, which overseas commercial bank lending, has expressed concern about the impact of rising personal borrowing on the stability of the UK economy. It has already advised high street banks to limit the number of high loan-to-income mortgages, to prevent households from paying sky-rocketing home values, and could launch a wider clampdown. Andrew Haldane, the Bank’s chief economist, admitted in November that policymakers might want to look “fairly carefully” at growth in consumer lending.

The latest data from Threadneedle Street showed that borrowing on credit cards increased by £411m in November, up from a rise of £271m in October, while debt on personal loans and overdrafts increased by £1.1bn over the month.

The return of heavy unsecured borrowing follows a three-year hiatus between August 2009 and August 2012, when consumer credit contracted every month. However, since then banks have become more willing to lend and a price war on personal loans has seen costs fall to the lowest-ever level.



Tougher rules on mortgage borrowing are also likely to have persuaded more borrowers, who would previously have remortgaged their homes to release cash, to instead turn to personal loans.

Some analysts have warned that the trend for older borrowers to pay down debts at a faster rate, while younger people borrow more to compensate for low pay rises, will also increase the risks of another financial crash.

Howard Archer, the chief UK economist at IHS Global Insight, said the rise in borrowing tied in with figures showing strong retail sales in November, and that the Bank would need to keep an eye on borrowing levels.

“The pick-up in unsecured consumer credit to a near eight-year high in November follows on from data from the Office for National Statistics (ONS) showing that the household savings ratio dipped to 4.4% in the third quarter of 2015, which was the equal lowest rate since 1963,” he said.

This will fuel concern that consumers are borrowing more and saving less to finance their spending Howard Archer

“This will fuel concern that consumers are borrowing more and saving less to finance their spending, which is likely a consequence of relatively high consumer confidence and extended low interest rates.”

Nicolas Frankcom, of financial comparison website uSwitch, said the figures “expose the true extent of consumer spending ahead of Christmas”.

“With borrowing at an all-time high, it’s critical that consumers don’t bury their head in the sand and ignore their debt,” he said. “The long-term impact of falling behind on repayments cannot be underestimated.”

The Bank’s figures for mortgage borrowing showed lending was up by £3.9bn in November, compared to an average increase of £3.1bn over the previous six months. This is the highest monthly figure since May 2008, as the credit crunch was looming.

Gross lending secured on dwellings reached £20.3bn in November, while £16.7bn was repaid by borrowers. A total of 70,410 mortgages were approved for house purchases, compared to the average of 68,428 over the previous six months.



