Spending on credit cards increases by a third

Spending on credit cards has increased by a third as more people  have turned to borrowing cash amid the cost-of-living crunch.

The research by UK Finance found that credit card holders spent just under £20 billion in May, a 33 per cent jump in the total spend compared to the same month last year.

Debt also increased, with outstanding balances on credit card accounts growing 9.6 per cent in the year to May.

The number of credit card transactions also rose by more than a quarter year-on-year, with around 357 million payments in May by UK cardholders both in the country and oversees.

Credit card spending has been increasing steadily since the start of the year, coinciding with the rising cost of bills and double-digit food and drink inflation.

Meanwhile, total debit card spending edged up by just 1 per cent compared to the same period last year. The data comes as inflation spilled over into double figures in July, hitting 10.1 per cent, driven by big price rises across food and staple items, the Office for National Statistics said on Wednesday.

Real wages have declined, with UK workers seeing their pay lag behind inflation at record levels over the three months to June.

Commenting on the figures, Sam Welch, Director of Banking at TransUnion in the UK, said “The latest figures from UK Finance illustrate the impact the cost of living crisis is having on UK consumers, with credit card spend up 33.1% and outstanding balances up by 9.6% for the 12 months to May. TransUnion’s recent Consumer Pulse data found early indications that consumers could be gradually becoming more reliant on borrowing to get by, with a small increase in respondents (16%, up from 14% last year) who planned to use credit cards for payment of bills and other credit obligations.”

“The reality is we’re likely to continue to see consumer use of credit grow over the rest of the year as the situation remains challenging. Finance providers need to be more data-led than ever to ensure they’re lending responsibly. This means assessing the affordability of new credit applications and predicting future payment behaviour as accurately as possible, against the backdrop of an ever-changing economic environment.”