Official figures that have been recently released have shown that new borrowing on credit cards, loans, and overdrafts has been increasing, with the level of new borrowing outweighing the amount that has been repaid by consumers for the first time since June of last year.
The figures were released by the Bank of England, and showed that in December new borrowing increased by around £52 million.
Officials believe that the main driver behind the increase in consumer borrowing in December was increased borrowing on credit cards. It is thought that the run up to Christmas and New Year fuelled additional spending on credit cards, as consumers rushed to buy gifts and other items for the festive season.
In addition to this the January rise in VAT may have also sparked a purchasing rush on items such as big ticket items for which many may have used credit cards to fund the cost.
Over recent months reports have shown that consumers have been focusing on paying off their debts rather than increasing their debt or saving money, and this has certainly been the trend during the economic and financial downturn.
However, December saw this trend reverse as many people hit their credit cards with a vengeance, thus driving up consumer borrowing levels.
One industry official, Andrew Goodwin from Ernst & Young, said that there may a relapse following the increase in consumer borrowing. He 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.”