What does new data released by the Bank of England on credit card borrowing in the UK indicate?
What is the inflation rate in the UK?
What risks do wage cuts pose to the British economy?
Credit card lending in the UK rose the fastest in nearly two decades, according to the Bank of England.
New Data from the Bank of England
Credit card lending in the UK rose at the fastest annual rate in nearly two decades, according to data released by the Bank of England a few days ago. The Bank of England revealed that the credit used by these cards was 11.6% higher than in April last year, which is the highest increase since November 2005. Total consumer credit increased by 5.7% over the previous year, which is the fastest growth since February 2020.
Reduce Number of Mortgage Taken Out by Britons
At the same time, the housing market has slowed down with fewer mortgages being taken out by Britons and declining home purchase approvals. “This latest rise in consumer credit will trigger even more alarm bells at the Bank of England. It shows the economic storm clouds are getting darker by the day,” Andrew Montlake, managing director of the mortgage broker Coreco, told the Guardian. He added that people would often take advantage of credit and loans if they were confident, “but in this case it’s almost certainly because they are seeking extra cash to cover their bills and put food on their tables.”
9% inflation in the UK
Inflation in the UK rose to its highest level since 1982 and stood at 9% in April, indicating a worsening cost-of-living crisis according to the report. According to the government, gas prices rose by 95% between April 2021 and April 2022 and by 54% for British households, partly due to Western sanctions against Russia following its military operation in Ukraine.
Wage Cuts in the UK
According to official figures, the pressure on British living standards intensified in March as wages fell more than inflation. The Office for National Statistics (ONS) said the median income on prices, excluding bonuses, fell by 1.9% from a year earlier, the biggest drop since 2013. Rising prices deprive workers of the benefits of the strongest labour market. Wages rose by 4.2% percent in the first quarter, more than double the average of 2.1% in the pre-epidemic decade. This increase was more than enough to offset the increase in the cost of living.
The Risk of a Recession in UK
As inflation is set to rise above 10% by the end of the year, with the government raising taxes, consumers are facing an almost unprecedented drop in real-time disposable income. Some analysts say the blow could plunge the economy into recession, raising the question of how much the Bank of England is raising interest rates. The labour market in the first quarter saw unemployment fall to 3.7%, the lowest rate since 1974, and rising vacancies to record levels. Employers are trying to find workers because hundreds of thousands of people who left the labour force during the epidemic have returned.
Rising Unemployment in UK
The Bank of England expects the number of the unemployed to increase by the end of the year as employers respond to a sharp drop in demand. Policymakers are raising interest rates in a bid to bring inflation back to the 2% target. The concern is that if workers believe that inflation remains high, demand for wages could rise across the economy, creating a destructive spiral of wages.
Rising prices for food and consumer goods have also been driven by strong demand amid economic recovery following the Covid-19 pandemic and supply chain bottlenecks. Credit card debt is considered the worst type of debt because, unlike personal loans taken out for special needs such as buying a car or paying for tuition, the interest rate is in double digits.
