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July 7, 2022

UK consumer credit numbers cause for vigilance, not panic

The cost of living crisis is starting, albeit modestly, to be reflected in UK credit card missed payments stats

By Douglas Blakey

UK consumer activity is on the rise as highlighted by June’s figures with credit and debit card spending, based on Bank of England interbank CHAPS payments data, rising to 102% of its February 2020 average in the week to June 30, up two points on the week.

It is also encouraging that UK Finance’s latest figures show that overdraft usage continues its gradual return to pre-pandemic trend rather than any unexpected sharp increase, and the proportion of credit card balances that are not paid off each month continues to trend down.

Numbers from FICO always merit the greatest of respect and its latest UK credit card market report shows just the earliest of signs of the impact of the widely reported cost-of-living pressures. FICO reports a rise in card spend and balances, but also a slight increase in missed payments.

The signs of the cost-of-living crisis are still limited, with the biggest area of concern being a 3% increase in the average one payment missed balance month over month for new cardholders (less than 12 months). As FICO notes, the higher-risk accounts are more credit hungry, so lenders will want to be vigilant in monitoring this trend.

Only yesterday, Charlie Nunn, the head of the UK’s largest retail bank by market share, Lloyds, said the bank had seen the number of customers with persistent debt problems jump by almost a third in the past year. No doubt the position will become clearer when the banks report second quarter numbers.

The banking sector performed admirably during the pandemic in contrast with its conduct during the 2008 financial crisis-lessons were definitely learned in how to treat vulnerable consumers. The latest numbers from UK Finance are not yet evidence of any cause for panic. But with consumers facing increasing inflationary pressure as the cost-of-living challenge accelerates, UK banks will be expected to demonstrate a willingness to exercise their range of forbearance tools.

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