This figure is above the 12-month pre-pandemic average up to February 2020 where it stood at £1bn, according to the Bank of England money and credit report for June.

It revealed the additional borrowing in the month was split between £1bn on credit cards and £800m on personal loans and car finance.

Rates on new personal loans increased by 22 basis points to 6.71% in June, but remains below the February 2020 (pre-pandemic) level of 6.9%. The effective rate on interest bearing credit cards increased by 19 basis points to 18.56% in June from 18.37% in May.

Meanwhile, savings plummeted as households deposited an additional £1.5bn with banks and building societies, compared to £5.2bn in May. Savers ploughed a higher £400m into NS&I, up from the £300m in May. Overall, the Bank of England said the combined net flow into both deposits and NS&I accounts in June (£1.9bn) was down from the £5.6bn in May which is below the average monthly net flow of £4.7bn in the 12-months to February 2020 (pre-pandemic).

The figures also cover mortgage lending and revealed net borrowing decreased from £8bn in May to £5.3bn in June. This is above the pre-pandemic average of £4.3bn in the 12 months to February 2020. Gross lending decreased to £25.4bn in June from £28.1bn in May.

Turning to approvals for house purchases, the Bank revealed this figure decreased to 63,700 in June, from 65,700 in May, which is below the 12-month pre-pandemic average. Further, remortgaging decreased from 47,200 in May to 44,000 in June. It remains below the pre-pandemic average of 49,500.

‘Economy will soon slip into recession’

Nicholas Farr, assistant economist at Capital Economics, said: “The large rise in unsecured borrowing in June is not as promising as it may seem, since it probably largely reflects households having to rely more on credit due to the cost-of-living crisis. Households won’t be able to fully offset the hit to their real incomes from high inflation this year, which is why we think the economy will soon slip into recession.

Elsewhere, there was further evidence that higher interest rates are curbing housing market activity.

We expect mortgage rates will rise further as the Bank of England continues to hike Bank Rate, from 1.25% now to 3.00% next year. That will weigh further on the housing demand over the coming months.

Overall, June’s money and credit data add to signs that higher inflation and higher interest rates are taking their toll on households. With inflation and interest rates only set to rise further, we think the economy will soon slip into a recession.