Credit card lending continues to rise as Bank of England gears up for interest rate hike

Latest figures follow news British households are spending more than they earn for first time in 30 years

One expert said the Bank of England should 'think carefully' about the risks of raising rates (Reuters)

Credit card lending has been growing faster than other loans for the past six months, with consumer credit and mortgage lending both rising in June, according to the latest figures from the Bank of England.

The data shows the annual growth rates of consumer credit and mortgage lending were unchanged last month, at 8.8 per cent and 3.2 per cent respectively.

The Bank said mortgage lending “remains modest compared to the pre-crisis period”, but noted the number of mortgages approved ticked up in June to 66,000, close to the average since the end of 2013.

Meanwhile, credit card lending rose by 9.5 per cent. The Bank said credit cards have been accounting for an increasing share of consumer credit growth over the past couple of years, with the growth rate of credit card lending exceeding that of other loans and advances such as overdrafts and car finance.

The credit data comes as markets prepare for the Bank of England to announce an increase in interest rates to 0.75 per cent this week, and follows a report from the Office for National Statistics last week which showed UK households collectively spent more than they earned in 2017, for the first time this in almost 30 years.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: ”The further pick-up in households’ and corporates’ borrowing in June strengthens the case for the MPC to raise interest rates at its meeting on Thursday, though we doubt that the recovery has further to run. House purchase mortgage approvals, in particular, will struggle to rise further, having hit a five-month high in June.

“The upturn in borrowing will run out of steam.”

Fran Boait, executive director of Positive Money, said the latest figures should give pause to central bank policymakers pushing for a rate hike.

“With consumer credit growth remaining high, the Bank of England should think carefully about the risks of raising interest rates on Thursday,” she said.

“After a decade of stagnant wages, UK household debt is now worse than any time on record, with households having turned to borrowing in order to spend £25bn more than their income to make ends meet.

“Unaccompanied by a boost to incomes, a rise in borrowing costs would further burden indebted households and threaten the UK economy’s fragile recovery.”

The Bank’s data showed the total amount borrowed by businesses in June rose by £2.6bn, more than half of which came from bank lending.

Mr Tombs noted that the increase “largely reflects a surge in M&A activity in May, rather than signs that firms are borrowing more to invest”.

He added: “A lasting pick-up in corporate borrowing likely won’t emerge until firms can be sure that a no-deal or hard Brexit will be avoided, and that point probably won’t be reached until early next year.”