Art and design






Life and style








US news

World news

UK consumers trapped in credit card debt for longer than thought

a stack of credit cards
The study showed it was common for people to stay in debt even after paying off one credit card, as they shift debts from one lender to another. Photograph: Adam Gault/Getty Images

British consumers are trapped by credit card debt for longer than previously thought, according to a study by officials at the Bank of England and the City regulator, as unsecured borrowing reaches levels unseen since the financial crisis.

Analysis by the Bank and the Financial Conduct Authority showed it was common for people to remain in debt even after paying off one of their credit cards, as they shift debts from one lender to another. Previously, Threadneedle Street had believed that credit cards were paid off more quickly, particularly in relation to mortgages.

Nine out of every £10 of outstanding credit card debt in November 2016 was owed by people who were also in the red two years earlier, according to the study.

The analysis follows the rapid growth in personal borrowing on credit cards, loans and car finance, now rising at almost five times the rate of growth in UK pay. Households are finding themselves increasingly squeezed by meagre earnings growth and rising inflation, as the weak pound after the Brexit vote pushes up the cost of imported goods.

Bank data shows personal debts have risen to the highest level since before the credit crunch, reaching more than £200bn – with credit cards accounting for more than £70bn of the total.

Households are also facing a year of stagnant real earnings growth in 2018, which may push them further into debt should they wish to maintain their living standards.

Writing on the Bank Underground blog – where Threadneedle Street staff can air their views in public – the officials said: “Although a consumer may clear their debt on one credit product, it is not uncommon for them to remain in debt as they transfer balances, take out new credit products or draw down on existing credit lines, such as credit cards.”

Nine out of every ten pounds of credit card debt in November 2016 was owed by people with debts two years earlier
Persistent credit card debts Photograph: Bank of England

The Bank has become increasingly worried about the boom in personal debt over recent months, forcing banks to beef-up their financial reserves to protect against any losses. It warned against reckless lending standards emerging after a period of economic stability since the financial crisis, saying Britain’s banks could incur £30bn of losses if interest rates and unemployment rose sharply.

The study found some crumbs of comfort for the Bank, finding that the growth in consumer credit had not been driven by people with poor credit scores – known in the finance industry as “subprime” borrowers. This would help to suggest that the growth in consumer credit has been less risky than feared.

But while the proportion of borrowers with bad credit scores remained roughly the same over the two years to November 2016, officials said there should have been an improvement because of the economic recovery over the same period of time, which points to banks still being at risk from bad debts.

• Follow Guardian Business on Twitter at @BusinessDesk, or sign up to the daily Business Today email here.

This article titled "UK consumers trapped in credit card debt for longer than thought" was written by Richard Partington, for The Guardian on Monday 8 January 2018 04.22pm


Milton Keynes: UK capital of ‘right-to-buy-to-let’

The floor in Elina Apse’s house on the Netherfield council estate in Milton Keynes is so cold that… Read more

How best to leave the world of work behind | Letters

Andy Beckett’s long read was elucidating and possibly prescient (Post-work: is the job finished?,… Read more

Should I use the help-to-buy scheme for a new-build home?

Q My wife and I have reserved a new-build property in Surrey costing £600,000. We are now… Read more

Boohoo says its ‘sale’ will end in minutes – why is it back in a couple of hours?

On Monday night I saw that the Boohoo fashion website was having a fantastic sale – “20% off… Read more

Ryanair: passengers fight for expenses if flights are delayed

When Linda Fisher booked a three-day break in Berlin to visit her boyfriend last August, Ryanair… Read more

Dyson V8: why is the pricing an Absolute farce?

I wanted to buy a Dyson V8 Absolute vacuum cleaner, which appeared to drop in price around Black… Read more

Why was I humiliated by Waitrose self-scan check?

I have just been humiliated by Waitrose after self-scanning a big shop in my local branch, when I… Read more

Where to move for wellbeing

I’d like to be well, wouldn’t you? Well, well-er. I’m OK. Midlife dampens expectations, and I’m… Read more

Think you can spot scammers? Just 9% of Britons really can

An official campaign to protect consumers against financial fraud has been launched after a survey… Read more

'Legalized loan sharking': payday loan customers recount their experiences

Mick Mulvaney, White House budget director and interim director of the Consumer Financial… Read more