UK consumers have made net repayments on their credit cards for the first time in almost seven years, as households across the country rein spending in and rebuild their finances after a boom in borrowing.
The Bank of England reported the first monthly fall in credit card debts since July 2013, after borrowers repaid around £100m in November to reflect fading demand for consumer credit.
The annual growth rate in unsecured consumer lending dropped to 5.7% from 6.1% in October, as households limited their spending on credit cards and cut back on finance deals to purchase a new car.
Mirroring a slowdown in consumer spending over recent months, the total amount borrowed in November dipped to £600m, marking the weakest monthly growth in borrowing in six years, and sliding below a £1.1bn monthly average since July 2018.
Concerns have been growing about the strength of the UK economy at the end of last year amid a slowdown in consumer spending before the election and as households braced themselves for Brexit.
High-street sales slumped in November to mark the weakest period for sales for more than a year, which experts said would be reflected in the weaker growth in consumer borrowing. Economists forecast that the UK economy probably stalled in the final three months of the year.
Howard Archer, the chief economic adviser to the EY Item Club, said: “There had been signs in the latter months of the year that consumers had become more concerned by the combination of a struggling domestic economy as well as heightened domestic political and Brexit uncertainties.”
Despite the first net repayment in credit card borrowing for years, the Bank said that consumers still have around £72.1bn in credit card debts outstanding, significantly higher than in recent years. Borrowing has gradually been rising since 2012, when credit card debt hit a post-financial crisis low of around £55bn. Overall consumer borrowing remains above pre-financial crisis levels at more than £225bn.
The fall in credit card debt also comes after new rules were introduced by the UK financial watchdog in 2018, which forced card providers to take steps to help people with persistent debt to accelerate their repayments.
Over the next couple of months, firms will also be required to restructure some people’s outstanding debts into affordable repayment plans over a three to four year period.
Sue Anderson of the StepChange debt charity said it was too early to know if one month’s figures had been influenced by the changes, but added: “We are looking to help those affected by these credit card changes to understand and manage their debt in an affordable way.”
