Credit Cards & Loans
Brits turn to credit cards as cost of living bites
After several months of falls, outstanding balances on credit cards have started to creep up again with balances up 3.8% year-on-year, according to UK Finance.
There were 292.4 million credit card transactions in January, 47.9% more than in January 2021 and 2.6% more than January 2020. The total spend of £16.2bn was 51.6% higher than January 2021 when spending was muted due to the pandemic, but 6% lower than in January 2020.
The figures come a week after the Office for National Statistics reported that inflation had hit a 30-year high of 7% in March, and suggest that Brits are using credit cards for everyday essentials.
Figures from the Bank of England last month found that Brits borrowed an additional £1.5bn on credit cards in February to cope with rising prices.
UK Finance’s Card Spending Update for January 2022 reported that there were 1.2 billion contactless transactions in January 2022. This is a 78.7% increase on January 2021 and a 31% increase on January 2020.
The total value of contactless transactions in January 2022 was £16.3bn. This is a huge increase on the previous two years and fuelled by the contactless card limit being increased to £100.
Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown, said: “Today’s data shows further signs the pandemic savings boom is unravelling with outstanding credit card balances on the rise after months of decline. Subdued spending habits during the pandemic meant we could put more away for a rainy day and we were less likely to put purchases on the plastic and not pay them off in full.
“There was always going to be something of a financial hangover post-Christmas, but the concern is that these outstanding balances are also a sign that the rising cost of living is starting to bite. We are increasingly having to burn our way through our lockdown savings to meet everyday expenses and using our credit cards more to fill any gaps.
“The pandemic has also had a huge effect on how we use our cards with contactless transactions continuing to rise steeply. Many shops were reluctant to handle cash during lockdown and it looks to have fallen further out of favour with the recent increase in contactless limits set to £100.”
