With household finances under pressure, consumers turned to credit cards in January, with outstanding balances rising 3.8% year-on-year, UK Finance’s latest Card Spending report reveals.
UK credit card holders made 292.4 million transactions in January. This marks a substantial increase (47.9%) from January 2021 when the country remained under lockdown. But the number of credit card transactions was also up 3.4% from January 2020, when normal conditions prevailed, and suggests households struggling with everyday expenses are turning to credit.
However, total credit card spending, at £16.2 billion in January, remained 6% lower than in 2020, despite the rise in transactions, suggesting consumers are avoiding high-cost purchases.
They’re also struggling more to pay off the balance on their credit cards. Outstanding balances on credit card accounts grew 3.8% between January 2021 and January 2022, the City trade association revealed.
This marks a sharp contrast from the early months of the pandemic, when, anxious and stuck at home, Brits piled money into savings accounts and paid off debt.
Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown, said: “Today’s data shows further signs the pandemic savings boom is unravelling with outstanding credit card balances on the rise after months of decline. Subdued spending habits during the pandemic meant we could put more away for a rainy day and we were less likely to put purchases on the plastic and not pay them off in full.
“There was always going to be something of a financial hangover post-Christmas, but the concern is that these outstanding balances are also a sign that the rising cost of living is starting to bite. We are increasingly having to burn our way through our lockdown savings to meet everyday expenses and using our credit cards more to fill any gaps,” she added.
UK Finance’s data echoes the Bank of England’s latest Money and Credit report, which revealed Brits put an additional £1.5 billion on credit cards in February. Brits also took out another £0.4 billion in personal loans and car finance during the month.
Households are also finding less money to put into their savings accounts. While £7.2 billion was stashed in January, that fell to £4 billion in February, the central bank said.
Meanwhile, contactless payments surged, UK Finance found. Brits tapped to pay 1.2 billion times in January, up 78.7% from January 2021 and 31% higher than in January 2020.
Contactless payments accounted for 55% of all credit card transactions and 69% of all debit card transactions. A total of £16.3 billion was spent with contactless transactions in January, 102.9% higher than in January 2021 and 97.2% higher than in January 2020.
The explosion in contactless spending reflects the increase in the contactless limit to £100 in October 2021. In January 2020, the limit of contactless payments stood at £30, before being raised to £45 in the early weeks of the pandemic and hiked again 18 months later.
