Rising Levels of Credit Utilization in the UK

Rising Levels of Credit Utilization in the UK

Credit card utilization is widespread in the United Kingdom. The smart technology on many leading credit card brands today – Visa, MasterCard, American Express, Discover – offers protection against unauthorized usage, and the guarantees provided by credit card companies ensure that fraudulent activity does not affect the credit card holder adversely.


However, the use of credit card facilities in the United Kingdom has grown markedly in recent years. UK authorities reported that household debt levels are on track to reach a record high in 2018, as Britons place more of their expenses on their credit cards. The total value of unsecured debt (as at December 2016) amounted to £13,200 for the average household. Consider that at the time of the global financial crisis in 2008, the average household debt level was £13,300.

TUC (Trades Union Congress) analysts anticipate that the average household debt in 2018 will rise to £14,300, and as high as £13,900 by the end of 2017. This trend is expected to continue well into 2021 at which stage TUC analysts expect average household debt levels to reach £15,400. According to the above graphic, the average UK household debt will rise in the following fashion:

  • 2017 – £13,900
  • 2018 – £14,300
  • 2019 – £14,700
  • 2020 – £15,000
  • 2021 – £15,400

Declining Real Wages and Increased UK Household Debt

These figures are based on 2016 prices, prior to the UKs June 23, 2017 referendum. While inflationary forecasts are included, the recent performance of the UK economy will need to be factored into the actual figures. Trends suggest that declining real wages and rising prices (a weakening of the GBP means that imports will be relatively more expensive) has led to a degree of stagnation in consumption expenditures in the UK. Britons are less likely to push for wage increases, as they are more concerned with holding onto their jobs as multinational conglomerates exit the UK in favour of greener pastures abroad.

The Bank of England (BOE) has been reluctant to increase interest rates, given that the UK economy is battling Brexit demons, and the third round of negotiations between the UK and the EU hit an impasse. As long as Britain struggles to formulate a trade policy with the EU, the GBP will remain on the back foot, despite short-term price bursts. The GBP/USD pair recently broke above the critical 1.30 resistance level, and is holding for the short-term. Over the past month, the GBP/USD traded within a tight range, reaching a low of 1.2786 on August 24, 2017, before clawing its way above the 1.300.

The GBP/EUR pair has weakened substantially since August, but has reversed course recently from a multi-year low of 1.0742 on August 29 to its current level of around 1.0948. The EUR is being supported by bullish sentiment from the ECB which expects to taper its €60 billion per month quantitative easing program towards the end of 2018. This has assisted the EUR in its movements towards parity with the GBP. It is also strengthening against the USD and other currencies.

GBP Weakness and Import Prices

A weakening of the GBP naturally results in higher costs for imported goods from Europe and the US. Since consumers are seeing their real wages decreasing, many of their routine expenses are not being met. Credit cards are a convenient means of taking care of these payments. The Bank of England reported that UK households increase their consumer debts by £1.6 billion in March 2017 and overall borrowing levels are up sharply year-on-year.

12-month consumer credit growth increased by 10.2% by March 31, 2017, and that trend is continuing. The only concern is that UK wages are not keeping pace with increased borrowing. On a positive front, the ONS (Office for National Statistics) reported that household disposable income levels are rising year on year, indicating improving living standards in the UK. As real wages rise, Britons will be able to lower their household debt accordingly.


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