UK Consumers Lean on Credit as Household Budgets Tighten

UK Households Turn to Borrowing Amid Economic Pressures

As living costs continue to climb and wages struggle to keep pace, UK consumers are relying more heavily on credit to manage their daily expenses. Recent financial data shows a sharp uptick in credit card usage and personal loan applications, painting a stark picture of households grappling with squeezed budgets.

The Bank of England reported that households added nearly £1.6 billion to their credit card balances in May 2024, the largest monthly increase since late 2022. Additionally, consumer finance industry sources note a surge in personal loan applications each month throughout the first half of the year, with many loans used to cover utility bills, groceries, and rent.

"When families face rising grocery and energy costs without corresponding wage growth, using credit becomes a lifeline, albeit a risky one," said an analyst at the Centre for Economics and Business Research (CEBR).

Signs of Financial Strain

Contrast to past trends—when most credit spending fueled big-ticket items or discretionary purchases—today's borrowing is filling gaps in essential household budgets. Key indicators include:

• Increased minimum credit card payments, with many unable to pay off full balances.
• Growth in short-term loan applications, especially among low-to-middle income earners.
• Higher demand for debt advisory services and support charities.

A Financial Conduct Authority (FCA) report highlighted that more than 4 million people missed a debt repayment or bill in the past six months, up by 25% from the previous year.

Impact on Spending and the Wider Economy

This shift suggests a change in consumer behavior, with less spending on leisure or non-essential goods. The UK retail sector has reported slower growth, while supermarkets and utility providers see increased usage of buy now, pay later (BNPL) schemes.

Key Figures at a Glance

Financial MetricMay 2023May 2024Credit Card Debt£63bn£70bnPersonal Loan Growth3%6%Missed Bill Payments3.2m4.1m

Expert Perspectives

Jane Kavanagh, policy director at StepChange Debt Charity, said,

"We're seeing a worrying trend in which what once was used for emergencies, like credit cards, is now covering basics like groceries and utilities. If inflation and low wage growth persist, more households could find themselves in a debt spiral."

A spokesperson for the FCA added,

"We're monitoring lenders to ensure responsible lending and are urging those struggling to seek professional debt advice at the earliest sign of trouble."

The Path Ahead for UK Households

With inflation showing few signs of receding and forecasts suggesting ongoing pressure on real incomes, consumers are being urged by financial experts to budget carefully, explore support options, and avoid high-interest credit where possible.

Highlight: If you're facing difficulties, reach out to organizations like Citizens Advice or StepChange for guidance.

• Check for eligibility for government support programs, such as Universal Credit or local council grants.
• Consider speaking to your bank about payment holidays or restructuring debt.

The big takeaway: The reliance on credit to fund daily essentials suggests the financial health of UK households is fragile. Addressing both immediate needs and long-term solutions will be crucial as the economic landscape continues to evolve.