British household borrowing in May reached its highest level since August last year as the easing of lockdown coincided with a fall in loan interest rates.
Figures from the Bank of England showed the first significant credit spending surge in eight months when £280m more was borrowed on consumer credit than was repaid.
Personal loans and car finance deals were responsible for most of the increase as rates on new personal loans fell to 5.61%, compared with an interest rate of 7.03% in January 2020.
Credit card borrowers responded to a small increase in interest rates to 17.83% in May by cutting back their borrowing, but not by enough to offset the rise in people taking out car and personal loans.
Commenting on the announcement, Andy from Arcus said it looked as if borrowing was returning the ‘the old normal’ as the lifting of social restrictions prompted consumers to reach for their wallets.
However, debt charity StepChange said that some of the rise in borrowing reflected the needs of the 6.4 million people who experienced a fall in income during the pandemic and had to use credit to make ends meet. They described ‘a debt overhang’ which was in marked contrast to the experience of households who had been able save during the pandemic.