The amount UK consumers owe on loans and credit cards grew by £1.9bn in March, the highest figure in 11 years driven by a sharp rise in spending on plastic.
Bank of England figures show outstanding borrowing on credit cards increased by £635m over the month, compared with an average increase of £400m over the previous six months. The figure is the highest since March 2005, and more than three times the increase recorded the previous month.
Borrowing through personal loans and overdrafts rose by £1.2bn over the same period, up from an average of £1bn. The annual rate of growth rose to 9.7% during the month, while comparing the last three months with the same period of 2015 shows unsecured borrowing has grown by 11.6%.
The combined increase in unsecured lending was also the biggest since March 2005, before the financial crisis, and marks the 13th month in which this type of borrowing has risen by more than £1bn.
Debt charities said that the rapid rise in borrowing was a growing concern. The new figures came as the Insolvency Service reported that personal insolvencies had risen by 0.3% in the first three months of the year, with 20,383 people in England and Wales declared insolvent.
Peter Tutton, the head of policy at StepChange, said: “Slow wage growth and the rise in insecure jobs have left millions of households financially vulnerable and we have already seen an increase in the number of people coming to us for debt advice in 2016.
“If consumer credit continues to rise quickly, it risks increasing the vulnerability of households who are already struggling to make ends meet.
“The last time consumer credit increased at this rate was in the lead-up to the recession, when credit was widely available and many households became seriously indebted.
“Creditors must ensure they carry out thorough affordability checks and lend responsibly to ensure that the mistakes made back then are not repeated.”
Recent months have seen a price war on credit cards and loans, with borrowers offering long-term interest-free deals on spending and balance transfers. Personal loan rates have also fallen to record lows. Easter also fell in March, and although retail sales figures do not suggest that people were flooding to the shops, some credit card borrowing may have financed seasonal breaks.
Tashema Jackson, a money expert at the comparison website uSwitch.com, said: “While rock-bottom interest rates have helped consumers get great introductory offers and low mortgage rates, it also means the temptation to borrow beyond our means has seldom been higher.”
Howard Archer at Global Insight said increased consumer willingness to borrow was likely to have been fuelled by recovering confidence and low interest rates, and that household debt levels were down from the peaks seen in 2009.
“Nevertheless, it is important that consumers do not become increasingly tempted to take on excessive debt and also that bank lending standards do not slip,” he said.
“In considering borrowing, consumers need to allow for the fact that interest rates will eventually rise [albeit unlikely in 2016] – even if the increases are likely to be gradual and limited compared to past norms.”
The Insolvency Service figures show that despite an increase at the start of the year, the number of personal insolvencies was down by 2.2% on the first quarter of 2015.
Changes to debt relief orders (DROs), which now allow those with £20,000 of debt to enter insolvency, led to an increase in those using them to enter insolvency. There were 6,722 DROs in the first quarter of 2016, a 3.4% increase compared with the final three months of 2015 and 8.2% higher than a year previously.
Prior to October 2015, DROs were open only to those with debts of up to £15,000, and around a quarter of DROs this year have involved qualifying debts greater than that figure.
Joanna Elson, the chief executive of the Money Advice Trust, the charity that runs the National Debtline, said: “For once, this slight rise in insolvencies isn’t all bad news, as these figures confirm that recent changes to debt relief orders are working, helping thousands of additional people who previously had no way of resolving their financial difficulty.”
She said, however, that there was a need for a full review of the options available to people struggling with debt.
“We have to make sure that anyone, in any situation, can access an option that can help them resolve their financial difficulty – and that no one is allowed to fall through the cracks of a system that has evolved organically over several decades.”