Shoppers are still pulling out the plastic, but borrowing may become less choice and more necessity as budgets are squeezed
Britons enjoyed their Christmas shopping – but will their debt catch up with them? Photograph: Jack Taylor/Getty Images ritain went on a bit of a borrowing binge as Christmas approached. Unable to resist all the bargains on offer on Black Friday, shoppers pulled out the plastic. The rise in unsecured consumer debt in November was the biggest for more than a decade.
News of the increase in consumer debt is not exactly a surprise. When the Bank of England cut interest rates in August last year, the aim was to making borrowing cheaper and therefore more attractive. The message came through loud and clear: UK households need little encouragement to buy on the never-never. Unsecured credit is growing at an annual rate just shy of 11%
Rising consumer debt is not necessarily a problem. When unemployment is low and real incomes are rising, it can make perfectly good sense to borrow for a big-ticket item, especially when, as on Black Friday, it is on offer at a knockdown price and when interest rates are so low.
But anybody who believes consumers can continue to amass credit at 11% a year is living in cloud cuckoo land. The UK has been through these credit cycles many times in the past, and things have never ended well.
Annual growth in unsecured borrowing is edging back up towards the 16% peak reached in the early 2000s, as is unsecured debt as a proportion of disposable income.
The danger comes when unemployment rises, real incomes are squeezed or interest rates start to go up. At that point, borrowing becomes less a matter of personal choice and more a sign of financial distress.
Britain is not at that point – yet. Consumers are not optimistic about the outlook for the economy but they are relatively happy about the state of their own finances. That could change as inflation starts to climb.