Spending squeeze sparks the return of the credit card and a savings slowdown

We borrowed another £700 million in consumer credit, including £600 million more on credit cards, the largest amount of card borrowing since July last year. Credit card debt is now down just 3.2% in a year.

Between the start of the pandemic and April this year, we only had two months when we borrowed more than we repaid. Since May, this has happened in five of six months.

New savings dropped to £5.5 billion, plus £900 million in NS&I, not far above the pre-pandemic combined average of £5.5 billion.

Sarah Coles, senior personal finance analyst, Hargreaves Lansdown: “The spending squeeze has helped to spark the return of the credit card, and a slowdown in savings.

“Over the past couple of months, credit cards have made a comeback, with borrowing of £600 million in both September and October. Meanwhile, our enthusiasm for saving has waned: savings fell to their lowest since the onset of the pandemic on October. It’s less than half the average of the past 12 months, and isn’t far from pre-pandemic averages.

“The spending squeeze has played a major part in this. Rising prices have hit hard. CPI inflation soared to 4.2% in October, hitting its highest rate in a decade. It wasn’t just one-off costs like home improvements and second-hand cars, some of the biggest rises were in the cost of the basics, which we couldn’t avoid. Among the most striking was the £139 hike in the energy price cap, causing financial headaches for millions of us, while energy company failures meant even bigger rises for hundreds of thousands of people.

“With the spending squeeze likely to inflict pain over the coming months, this could mean a pattern of borrowing more and saving less could be here to stay.

“This isn’t the only force at work though. The Christmas shopping season started earlier this year, as concerns about shelf shortages persuaded people to go early. We were also getting more confident about restarting our social lives, and spending more on going out. The emergence of the new strain of the virus has thrown our new habits into question, so we will have to wait and see whether our enthusiasm for going out and sticking the cost on credit remains , or whether we’ll go back home, and get back to saving again.”

Mortgages and savings statistics

  • The average easy access savings rate stuck at a record low 0.09%, while the average on new fixed accounts rose slightly again from 0.31% to 0.36%. It’s the highest this has been since April.
  • The average rate on new mortgages fell again to 1.59% – a new low.
  • The mortgage market fell back after the end of the stamp duty holiday. New mortgage debt fell to £1.6 billion. Mortgage approvals for house purchases was 67,200. This is the lowest since June 2020, and close to the monthly average in the year before the pandemic.