Britain is becoming a nation of debtors, with increasing numbers of people being forced to take out loans or turn to credit cards to pay for essentials, despite the worsening economic forecast.
The amount of cash borrowed through cards or loans climbed £629 million ($792.7 million) in September, about a third more than the previous month's increase of £478 million, the latest borrowing figures from the Bank of England suggest. In July the figure stood at just £369 million.
Secured lending, mainly in the form of mortgages, rose about £300 million over the month while the total amount of individual debt across the country rose to almost £1.5 trillion. But the rise in the amount borrowed on cards and loans is more than double the extra mortgage lending, prompting warnings that more and more people are relying on plastic to pay their bills.
Global Insight chief economist Howard Archer said: "The rise in unsecured consumer credit to a seven-month high in September suggests increased 'stressed borrowing' is occurring. More people are having to borrow to help finance their spending as a consequence of the extended squeeze on their purchasing power coming from elevated inflation, low wage growth and tighter fiscal policy. In addition, job losses are rising."
The amount owed on credit cards climbed £200 million in September to £56.9 billion, while other loans and advances rose £500 million to £151.8 billion.
Research by homelessness charity Shelter and Co-operative Insurance shows nearly a third of struggling families are being forced to spend more money each month than they have coming in, with the average adult facing a monthly shortfall of £165.
With the cost of credit higher for at-risk families because lenders consider them more risky borrowers, the fall into a disastrous debt spiral could be getting closer for millions. Those forced to turn to payday loans - or even illegal doorstep lenders - can end up having interest added on to interest, further increasing their financial woes.
Financial Inclusion Centre research for the Consumer Credit Counselling Service calculated that 3.2 million people were already in financial difficulty - either three months behind with a debt repayment or subject to some form of debt action such as insolvency - and a further three million were getting dangerously close.
It was these families which were likely to be those turning to credit to pay their essential bills, said Andrew Hagger, a money analyst at Moneynet.co.uk.
Payday lenders claim that the growth in the number of people turning to them is because of a preference for short-term credit, rather than taking on long-term debt.
- Independent