Credit card defaults hit highest since financial crisis as British households struggle to
Defaults on credit cards and other loans have hit the highest level since the financial crisis as British households struggle to make ends meet.
In a sign of mounting financial stress, the Bank of England said its gauge measuring default rates on ‘unsecured’ borrowing was higher in the second quarter of the year than at any time since 2009.
The central bank’s survey of lenders also found a further rise is expected over the summer.
But as default rates on unsecured loans rise, there has been little change on ‘secured’ lending, with households in difficulty tending to prioritise mortgage repayments over credit cards and other loans.
The report underlines the strain as unemployment rises, job opportunities fade and inflation remains stubbornly above the Bank’s 2 per cent target.
Rob Wood, chief UK economist at Pantheon Macroeconomics, described default rates as ‘a warning sign to watch’.
Households squeezed: The Bank of England said its gauge measuring default rates on ‘unsecured’ borrowing was higher in the second quarter of the year than at any time since 2009
Martin Beck, chief economist at WPI Strategy, said: ‘Defaults rising to a 17-year high reflects the delayed consequence of persistent cost-of-living pressures colliding with very expensive short-term borrowing.
‘Many households have used credit cards as a pressure valve, but higher bills, rents and mortgage costs mean more borrowers are struggling to keep up with repayments.’
The figures are yet another setback for Rachel Reeves, undermining her claims to have built a robust economy since taking over as Chancellor two years ago.
She looks set to be sacked if, as expected, Andy Burnham becomes Prime Minister later this month following the resignation of Keir Starmer.
It is feared Burnham and a new Chancellor will oversee a further lurch to the Left, including a fresh wave of painful tax hikes on households and businesses reeling from Reeves onslaught.
Karim Haji, global and UK head of financial services at KPMG, said: ‘Default rates paint a mixed picture of the economic realities facing households.
‘While defaults on secured loans were unchanged, tighter credit conditions, the impact of the Iran conflict and a cooling labour market triggered a rise in unsecured lending defaults, which is clearly where financial pressure is most acute.’
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