UK Credit Card Debt Puts Pressure on Cash Flow

March 2nd 2018.

Borrowing on credit cards in the UK increased by almost 10 percent in January — the second highest annual rise since 2005, according to data from the Bank of England.

Despite credit card repayments averaging £9.8 billion per month over the last year, this hasn’t stopped people from using their cards in the first place. Since concerns were raised by the Bank of England last year about rising consumer debt levels, consumer borrowing has slowed. Fewer consumers are applying for personal loans, particularly after interest rates were increased last November. However, people are still borrowing on credit, with new BofE figures revealing an extra £746 million was borrowed in January. With sluggish wage growth and high inflation, many households are struggling to make ends meet and it’s no surprise that many are relying again on plastic.

As inflation and interest rates rose, as did people’s concerns over their personal finances. Less were trudging the high streets looking for the next trend, and more were sticking to a tight budget. As a result, many retailers suffered a diminished demand and many desperately looked for new ways to encourage customers to their door. The strong growth in credit card borrowing does not suggest that people are becoming any less conscientious of their finances, but instead that many are searching for a quick solution to financial hardship. In a desperate plea to quash household debt many are seeing credit cards as an easy fix. This is a damaging mindset and one which will no doubt lead to further difficulties.

It’s encouraging that overall consumer debt is steadying but consumer spending is not yet restored, with retailers still struggling to make up for reduced customer interest. The Credit Protection Association offers business owners our expertise to help to free up cash flow to plug any holes any business until demand picks up indefinitely.

Borrowing on credit cards increased by 9.6 percent in January. In December, it grew by 8.9 percent.

StepChange, a charity helping people with debt problems, expressed encouragement that consumer debt was slowing but claimed it was “notable that credit card lending, the most common debt we see, has seen the fastest growth”.

On Wednesday the FCA overhauled its rules on credit card fees in order to assist people stuck in persistent debt, although analysis by the watchdog and the BoE released in January suggested much of the rise in consumer borrowing was fuelled by the most creditworthy.

Recent economic conditions are biting away at household budgets. If it’s not inflationary pressures or interest rates, its prolonged Brexit uncertainty and rising unemployment that are preoccupying people’s minds. Unfortunately, the more people struggle, the more businesses fall behind also. Stunted spending has led to a reduced cash flow for many retailers across the country.

If you are in need of a boost in your business to attract customers or investors come to the Credit Protection Association. We can free up your cash flow through our debt recovery services and put your business back in shape.