‘Ominous signs’ as borrowing continues to rise

This is £100m more than what was recorded in March 2022. This is the third consecutive month where borrowing has been higher than the 12-month pre-pandemic average up to February 2020 of £1bn. 

The additional borrowing in April consumer credit was split in half, with £700m on credit cards and £700m through other forms of consumer credit - such as car dealership finance and personal loans.

Responding to the figures, Jane Tully, director of external affairs and partnerships at charity the Money Advice Trust, described the figures as a “ominous sign” of the mounting pressure on household finances. 

She explained: “Using credit to cover essential costs, like food and energy, is often a sure sign of financial difficulty, and as we see at National Debtline, can lead to difficulties further down the line if repayments are not able to be met.

“The chancellor’s support measures, announced last week, are welcome and should provide some much-needed relief – and for those already struggling, this cannot come soon enough. It is now vital that this support reaches those most in need without delay.” 

StepChange’s director of external affairs Richard Lane, meanwhile, believes “targeted support” specifically aimed at those whose budgets don’t have the bandwidth to absorb higher costs is needed. 

He said: “The widening gap between people’s incomes and the cost of their essential spending is opening up problematic fault lines in household finances and contributing to debt problems, especially for lower income households whose budgets have little ability to flex.

“While we don’t doubt that policymakers are aware of the problem, at present the measures being taken to plug the gap are simply not sufficient to help many households avoid incurring debt as a result of the rising cost of living.

“We need to see targeted support specifically aimed at those households whose budgets don’t have the bandwidth to absorb higher costs – such as people on low incomes and relying on social security for some or all of their income, and those with vulnerabilities that mean they have specific needs and cannot cut their spending in areas such as energy or food. 

“These groups are already over-represented among those experiencing problem debt, and there is no time to lose if their financial situation is to be prevented from worsening drastically over the coming months.”

According to the Bank of England’s latest statistics, the annual growth of all consumer credit increased to 5.7% in April. Up from the 5.2% figure recorded in March, this is the highest rate since February 2020. 

The annual growth rates of credit card borrowing and other consumer credit were 11.6% - the highest since November 2005 - and 3.4% - the highest since March 2020. 

The effective interest rate on interest charging overdrafts, however, dropped by 23 basis points to 20.07% in April. Rates on new personal loans to individuals did increase by 60 basis points to 6.52%, though this was still 38 basis points below the pre-pandemic level seen in February 2020.