Laura Suter, head of personal finance at AJ Bell, comments on the latest Money and Credit data from the Bank of England:
“The nation is clearly already feeling the effects of the cost of living crunch, with credit card use soaring in February as rising prices push more people into debt. In February alone the country put £1.5bn on credit cards and took on another £400m of other borrowing, such as personal loans or store cards. The total amount that we borrowed in the month was more than double the pre-pandemic average and shows just how soaring prices are affecting people’s pockets.
“What’s more, the £1.5bn put on credit cards in February is equal to the previous five months’ combined, and is a far cry from the peak of the pandemic savings where the nation paid off almost £5bn in credit card debt in a single month. However, the reality is that this debt figure will keep climbing in the next few months as more and more households see their spending exceed their income, and have to put more monthly costs on credit.
“It’s worth noting that the Bank of England figures also don’t include any of the Buy Now Pay Later market, which has boomed in recent years and accounts for a big chunk of the credit we all take on. This means that the nation’s debt figure will be much higher in reality, as people choose to defer paying for stuff they can’t afford today.
“Unsurprisingly, the amount that we all managed to save dropped dramatically too, with £4bn put into savings accounts in February, compared to £7.2bn in January. However, when we look at bank savings combined with NS&I savings it’s at a similar level to pre-pandemic. We’re a far cry from January and February last year, when we saved more than £18bn across the two months, compared to just over £5.5bn this year. More households are going to have no spare money to put away each month and will have to start eating through their savings as ‘awful April’ hits and the squeeze on all our incomes ramps up.”