Britons cutting back on credit card debt

New figures suggest consumers are paying off existing balances



The economic gloom that has been hanging over the UK since the advent of the global financial crisis has caused many households to rein in their spending and focus on saving. New figures released by the Bank of England (BoE) appear to confirm this trend, but also suggest that credit cards still have a role to play in Britons' day-to-day lives.

Net lending surges
The latest report published by the central bank revealed that net lending to individuals increased by £1.5bn in May, with the 12-month growth rate rising to 0.9% from 0.8% in April. The three-month annualised growth rate was found to be 0.8%, which was a decline of 0.2% from the previous month.

The study also showed that total consumer credit jumped by £0.3bn in May, which was above the rise recorded in April (£0.1bn) and the previous six-month average improvement of £0.1bn. The annual growth rate of consumer credit leapt by 0.1% to 0.0% exactly, while the three-month annualised growth rate declined to 0.6% from the figure of 0.8% recorded in April. Credit card lending increased by £0.1bn, compared with the previous six-month average of £0.2bn, while other loans and advances were up by £0.2bn.

'Limited appetite' for borrowing
The credit card lending figure for May is the lowest posted by the Bank of England since September 2009. Howard Archer, an analyst at IHS Global Insight, suggested that this is indicative of a widespread desire among Britons to pay off existing balances rather than look to take out new credit cards. "Despite the modest rise in consumer credit in May, the impression remains that consumer appetite for taking on new borrowing is limited while there is an ongoing desire of many consumers to reduce their debt," he said in an interview with Reuters.

BoE remaining positive
While the future of the consumer credit landscape remains unclear, the central bank is maintaining an optimistic outlook after pumping £200bn into the UK economy by purchasing government bonds with newly printed money. It is hoped that this quantitative easing approach will spur nominal demand and encourage providers to loosen the constraints on their lending conditions. Regardless of how the situation develops, the main conclusion to draw is that it is perhaps more crucial than ever during this difficult financial period for Britons to compare credit cards in order to find a deal that works for them.

Published: 14 July 2010