Consumer Credit booming at fastest rate since 2008

WALSALL, U.K. - Sept. 10, 2013 - PRLog -- Data that has been released from the Bank of England has shown a 3.5% annual increase in consumer credit. This includes borrowing on overdrafts, credit cards and unsecured loans, including from payday lenders such as Wonga. This is the most rapid increase in four and half years.

This fresh evidence of consumers’ willingness to turn to expensive borrowing on personal loans – which charge up to and in excess of 7% compared with the Bank’s base rate of 0.5% - will increase fears that the UK is experiencing an unsustainable, ‘Alice in Wongaland’ recovery, a phrase coined by the economist Ann Pettifor.

Gillian Guy, chief executive of Citizens Advice, said: ‘the new optimism about the economy is threatening to become a smokescreen for the problems caused by the staggering cost of living. Debt is becoming a way of life for much of the country, with some people now reliant on high-cost credit just to get by. In the last year we have seen over half a million problems with credit card debts, overdrafts and personal loans.’

In July mortgage approvals for house purchase also rose to 60,624, according to the Bank, the highest level since March 2008, in the latest sign that the housing market is picking up.

Improved mortgage availability has helped prices to rise in some areas of the country, and building society nationwide have said that house prices have increased 0.6% in August.

Coupled with the turn in the housing market, the news that personal borrowing is increasing more rapidly rekindled the debate about whether the economic recovery is based on solid foundations.

Frances O’Grady, general secretary of the TUC, said: ‘At a time when workers are suffering the longest wage squeeze in over a century, these figures underline the importance of decent wages in making a sustainable economic recovery. The chancellor must face up the fact that the kind of recovery he’s encouraging is exactly the sort he promised we’d never see again.’

A treasury spokeswoman said: ‘the economy is on the mend, as confirmed by the latest GDP data showing balanced growth across the economy, but there is still a long way to go as we recover from the worst economic crisis in living memory.’

Consumer credit increased by £600m in July, up from a £400m rise in June, according to the Bank. The bulk of the increase was in ‘other loans and advances’, which include overdrafts and personal loans. These were up £500m, compared with an average monthly increase over the previous six months of £200m.

Business lending also increased in July, by £500m according to the Bank’s data. However, small and medium-sized enterprises (SMEs) are still failing to benefit despite the government’s Funding for Lending scheme, which is partly aimed at channelling lower-cost borrowing to smaller firms. Lending to SMEs fell by £900m in July and total lending to businesses was 3.3% lower than the same month a year earlier.

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