In still another sign that things may be improving for consumers around the world, as the Bank of England has reported consumer credit in the U.K. has grown at its fastest pace since 2007.
That’s great news for an economy that – similar to the U.S. – depends on consumers for a majority of its growth.
Rising credit card debt
While many of the Eurozone economies and the Euro currency itself are suffering, the British Pound is showing signs of stability and strength.
Recent data released by the Bank of England, the U.K.’s central bank, show credit card debt rose by £1.25 billion in the month of November. That’s the strongest debt increase since the second quarter of 2007 – just before the credit crisis and subsequent Great Recession that shook world economies.
The Bank of England report went on to show overall consumer credit growth in November reached £ 19 billion. It also reported fewer consumers were defaulting on their debts during the period and that household spending rose to its highest level in four years.
Lenders that were surveyed by the bank reported annual percentage increases that indicated strong demand would continue. Among the figures reported were:
- A total of 54.8 percent of lenders reported increasing demand for unsecured loans in the final quarter of 2014, with a 58.3 percent increase in demand for credit cards.
- More than 35 percent of lenders expected demand for continue rising in the coming quarter.
- More than 30 percent of lenders also reported medium-sized businesses were increasing their levels of debt as well.
- A reported 19.6 percent of lenders said debt default had dropped in the final quarter compared with the third quarter.
What’s driving it?
One reason given for the increase in consumer and business debt levels is reported as the increased competition between banks and credit card companies for borrowers.
In an effort to lure new clients, many institutions began offering generous balance transfer offers and other incentives.
That fact, coupled with the historic rise in spending due to the holiday period, may account for the majority of the increase in willingness to take on more debt. Still, growth at the fastest rate since the Great Recession can’t be ignored.
Not everyone is so sanguine about the increase in consumers willing to take on new debt, however. At least one British consumer group, StepChange, complained that the figures point to a worrying rise in people’s reliance on credit.
“While most people will be able to cope with the extra borrowing,” financial literacy charity Money Advice Trust told The Guardian, “We are concerned that many households will have overstretched – particularly over the Christmas period.”
An additional piece of information from the Bank of England report has to do with consumers’ single biggest purchase – a home.
Mortgage lending for the period rose by 3.5 percent, compared with a 0.6 percent increase in housing prices. At an average mortgage price of £170,514, an increase of £8,000 from the beginning of the year, a typical home in England is still selling below the peak in 2007 of £186,044.
What can we tackle our own debts?
Finally, consumers in the U.K. as well as here in the U.S. can use a few simple tips to help reign in debt that they may have accumulated during the holidays.
- Now is the time of year to focus on paying down high-interest credit card debt first.
- Consider a zero-interest card and transfer high-interest debt to that card.
- Be frugal with your discretionary spending and put every extra dollar toward credit card repayment.
- Consolidate credit card debt onto an existing low-interest card.
- Call your credit card company to ask for a lower interest rate or other promotional offer.
If we truly are in the beginning of a new economic expansion cycle, all of us could be in for some good news. One of the best ways to take advantage is by making sure our debt is under control and that we don’t abuse the good credit we’ve earned.
Editorial Note: Opinions expressed here are the author's alone, not those of any bank, credit card issuer, airline or hotel chain, and have not been reviewed, approved or otherwise endorsed by any of these entities.