UK household borrowing surges at fastest rate since pre-crisis

January saw a huge increase in consumer credit being taken out at ultra-low interest rates, Bank of England figures show.

Borrowing on credit cards, loans and overdrafts increased by £1.6bn during the month, notes The Guardian, compared with an average of £1.3bn over the previous six-month period. Almost a third of the total was accounted for by spending on credit cards, The Times adds, which coincides with evidence of a bumper start to the year for retailers amid increased consumer confidence.

The amount borrowed in January is the second highest since the summer of 2005, behind the spike in November for the Black Friday sales. At 9.1 per cent, the month-on-month increase for the month was the largest since 2006.

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The splurge from consumers is boosting the UK's dominant services sector, which is good news for the economy, with the ultra-low prevailing rates making it is easy for households to afford the outlay right now. However, the worry is that more people would be exposed were rates to rise suddenly or another crash to hit.

Some even predict the Bank of England will step in to curb lending by forcing banks to hold more capital against unsecured loans, which would have the effect of making them more expensive and should push up rates. Others believe this is premature, as borrowing has generally been lower since the financial crisis and mortgage borrowing remains well below the pre-crisis peak.

"Households have rediscovered their zeal for borrowing, indicating that concerns about over-indebtedness and financial stability are likely to resurface at the Bank of England soon," said Samuel Tombs, the chief UK economist at Pantheon Macroeconomics.

Howard Archer, the chief UK economist at IHS Global Insight, said: "January's spike back up in unsecured consumer credit may fuel concern that consumers are borrowing more and saving less to finance their spending. Increased consumer willingness to borrow has likely been a consequence of relatively high consumer confidence and extended low interest rates.

"However, it may be significant that consumers did rein in their borrowing in December after November’s spike."