Reduced Consumer Borrowing Results In The First Decline In Credit Card Debt Since 2013
06 Jan 2020
Approx Reading time: 3 minutes
- The monthly growth rate of credit card debt fell to the lowest point in November 2019, to 5.7%, in seven years.
- The slowdown in borrowing has resulted due to concerns surrounding the impact of Brexit on the UK economy, and new rules implemented by the UK financial watchdog.
After 7 years, the financial condition of the average British person seems to be improving as the credit card debt has actually fallen on a month-by-month basis. This has happened due to a change in spending and borrowing attitudes as people are spending more cautiously and avoiding borrowing for unnecessary expenditures.
According to data reported by the Bank of England, borrowers made repayments of around £100 million in the month of November, which is more than they borrowed that month, resulting in a net repayment. The last time that a net repayment occurred was back in July 2013.
Unsecured consumer lending has seen a fall in annual growth rate as well, standing at 5.7% after reporting 6.1% a month earlier in October. This happened because credit card spending has been reduced by households and also a lower number of people are signing up for car finance deals.
In total, consumers ended up borrowing a sum of around £600 million, which is well below the monthly average of £1.1 billion that has been reported since the month of July 2018. This low number has also caused the monthly growth rate of credit card debt to reach the lowest point in the past six years.
The slowdown in consumer borrowing is partly a consequence of concerns that the UK economy would weaken after Brexit. Households are bracing for this uncertainty and preparing for it by curbing spending and consumption.
Sales in the high-street markets have also shown a dramatic slowdown in November as well, making it the weakest month for sales in over a year. According to experts, this slowdown in sales will also manifest in the slow growth of consumer borrowing rates. Economists have opined that the UK economy probably stopped growing during the last three months of 2019.
However, it should still be noted that consumers still owe a cumulative £72.1 billion in debt on their credit cards, according to figures provided by the Bank of England, which is still much higher than the outstanding debt owed by Britons in the recent few years. This figure was much lower in 2012, standing at around £55 billion, due to the slowdown caused by the global financial crisis. However, since then, consumer credit card debt has shown a gradual increase over the years. Overall, consumer borrowing stands at £225 billion, which is still more than the figure reported in periods before the financial crisis.
The falling growth rate of credit card debt has also resulted from new rules applied in 2018 by the UK financial watchdog, which compelled credit card owners with persistent debt to increase the number of their repayments to reduce their outstanding debt.
In this quarter, it is expected that financial institutions will also provide their credit card customers with alternative repayment plans that would restructure their credit card debt and make it more affordable to repay their outstanding debt over a period of 3-4 years.