Credit card borrowing increased in December

Figures that have been released recently have shown that for the month of December the level of credit card borrowing increased, leading to an increase in overall consumer borrowing.

This has resulted in the level of new borrowing for the month outweighing the amount repaid on consumer debt, and this is the first time that this has happened since June of 2009.

The Bank of England released the figures showing that in December of last year consumer borrowing increased by £52 million, and it is thought that credit card borrowing was largely responsible for this increase in consumer borrowing.

Seasonal factors will have impacted on the level of consumer borrowing for the month, with many consumers relying on their credit cards, overdrafts, and loans in order to fund the cost of making purchases for Christmas.

It is thought that another driver behind the increase in consumer spending for the month may have been the fact that the level of VAT was set to increase from the start of January of this year.

The government reduced VAT from 17.5 percent to 15 percent last year in order to help boost the economy, but this temporary measure was set to end at the end of last year, with VAT returning to 17.5 percent from the start of this year.

Officials believe that the VAT increase may have encouraged consumers to buy more in December whilst VAT was still at its lower rate, which could have also contributed to the increase in consumer borrowing.

One economist stated: “The small increase in consumer credit is likely to be connected to consumers bringing forward purchases to avoid the VAT increase and a relapse is likely next month. The household sector is continuing to deleverage and we expect consumers to provide little support to the recovery as it develops this year.”

Tags: consumer spending, small increase, bank of england, Credit card, Value added tax