Laura Suter, head of personal finance at AJ Bell, comments on the latest Money and Credit data from the Bank of England:
“Brits borrowed another £1.4bn in April to help keep themselves afloat during the cost of living crisis. It marks the third consecutive month where borrowing has been higher than £1bn. Another £700m was borrowed on credit cards in April, an 11.6% rise in consumer credit – its highest level in more than 16 years, since November 2005. As a nation we’ve now put more than £3bn on credit cards in the past three months, and another £1.6bn on other forms of credit, including personal loans and car finance.
“However, some solace for those having to turn to debt is that interest rates haven’t shot up, despite the Bank of England base rate rising. Average interest rates on personal loans and credit cards rose in April but are still below pre-pandemic levels. In reality, those with the lowest credit ratings will be paying far higher rates for their borrowing.
“What the figures show is a divided nation, with many households still managing to save cash despite prices rising around them. A total of £5.7bn was saved by households in April and another £600m put with NS&I, which collectively is nearly 15% higher than the average in pre-pandemic times. It’s a far cry from the bumper savings the nation was making during lockdown, but with the prospect of tougher times ahead lots of households have tightened their belts and saved some cash in their emergency funds.
“Savers are being better rewarded for their efforts – although only marginally – with interest rates rising in April. However, the average rate savers are getting on easy-access accounts is still a miniscule 0.15% -- meaning £10,000 saved is earning just £15 interest a year. With a top-rate easy access account of 1.5% at the moment, savers could earn ten times the interest just for switching. The reality is that even at 1.5% you’re still losing a lot of money to inflation each year. At current inflation of 9% that’s a loss of £750 a year in spending power for someone with £10,000 saved.”