Almost half of British consumers struggle to pay off their credit card bill each month, while the proportion taking on more debt over the last five years has risen sharply. Borrowing has continued to rise to record highs in the wake of the vote to leave the European Union.
The proportion of borrowers who have a credit card which is not paid off in full every month has risen to 48 per cent, up from 39 per cent at the same point last year, while the share of people increasing their debt load has increased by 10 percentage points to 37 per cent, according to a survey by Arrow Global, a FTSE-listed debt management company.
The survey results show borrowers feeling the squeeze in the week that the Bank of England reported that credit card borrowing in the UK had increased to £66.2bn in October, growing by nine per cent in the last year.
The proportion of respondents with an overdraft also increased markedly from 23 per cent to 31 per cent, but the proportion of mortgage-holders declined by four points in the survey of 2,000 people.
While consumer lending is closely watched as an important part of a healthy economy, too high levels can mean borrowers are vulnerable in a slowdown.
“Consumer credit is vital for the smooth-functioning of the economy, but it is clear that British consumers are taking on a heavy debt burden at the moment that is not going to be sustainable for some,” said Tom Drury, chief executive of Arrow Global.
If the UK’s economic conditions worsen increasing levels of debt may become an issue. Potential economic headwinds in the coming months include geopolitical risks from Eurozone elections, which could have knock-on effects on the UK economy, and the triggering of Article 50 to leave the EU.
Official forecasters expect the rate of growth of the UK economy to slow in 2017, with wage stagnation that could impact consumers’ spending and borrowing. This can have long-term effects on households, with 10 per cent of defaulters say they are never able to catch up on repayments.
“The low interest rate environment means that debt is cheap, but that doesn’t help consumers who have struggled with their monthly budgeting or suffered from a shock event like losing their job,” said Arrow’s Drury.