Summer spending spree funded by credit cards - UK Finance

26 September 2018, 10:28 | Updated: 26 September 2018, 11:19

Credit card spending is up almost 8% on a year ago, a banking industry group says - a development likely to stoke fears of financial overstretch among households ahead of Brexit.

UK Finance, which represents the major banks, reported that outstanding levels on card borrowing grew by 5.8% last month compared to a year ago though overdraft borrowing was 7.2% lower.

It released the figures amid separate data showing a surge in retail sales in July and August as consumers splashed out during the hot summer weather following months of restraint on the high street.

The good weather has been credited for propping up UK economic growth since output was damaged in the first quarter of the year by a series of "Beast from the East" cold snaps.

A pick-up in gross domestic product since the winter helped the Bank of England raise interest rates again last month - raising borrowing costs in the process.

There are now signs that rising fuel and energy prices are putting pressure on inflation and therefore household spending power.

While policymakers have voiced concern about household debt levels, economists have also pointed to record employment levels as giving some comfort.

Recent Bank of England figures, covering up to July, had suggested total credit card lending had been falling though it stood at an 8.9% annual rate of growth.

It said then that consumer credit levels remained high "particularly compared to 2009-2012" - after the financial crisis.

UK Finance also reported a slowdown in mortgage approvals, suggesting a pre-rate rise rush for fixed rate deals.

Peter Tyler, director at UK Finance, said: "Remortgaging continued to dominate in August, as homeowners took advantage of a competitive market to lock into attractive deals.

"Growth in card spending remained fairly strong, reflecting the boost to retail sales from the warm weather as well as the growing use of credit cards as a preferred means of payment.

"However, the overall economic outlook remains mixed as household incomes continue to be squeezed by rising inflation."