Credit Card Spending Surges as Consumers Seek to Offset Rising Living Costs

Consumer reliance on credit cards has accelerated sharply in the lead up to Christmas, with outstanding card debt reaching nearly £78 billion in November. The Bank of England’s data revealed a 12.1 per cent increase compared with the same month last year, marking the strongest growth since January 2024.

The spike in credit card spending reflects a complex picture of consumer behaviour. Whilst seasonal purchasing for Christmas festivities undoubtedly contributed to the rise, economists suggest that households may be increasingly turning to credit to compensate for erosion of real incomes caused by persistent cost of living pressures. This distinction matters considerably when assessing the health of consumer finances going forward.

Martin Beck, chief economist at WPI Strategy, cautioned that the data presents an ambiguous signal. “It remains unclear whether this reflects improving confidence or a greater reliance on credit to smooth living cost pressures,” he observed. This uncertainty underscores the fragility of consumer spending patterns in the current economic environment.

The property market demonstrated more resilience than some anticipated, despite widespread speculation about forthcoming tax increases. The Bank of England recorded 64,500 mortgage approvals in November, representing a modest decline of 500 from October. Average mortgage rates edged upward to 4.2 per cent, yet demand in the housing sector remained broadly robust. Economists attribute this stability partly to improved affordability over preceding months, though analysts caution that the significant gains have largely passed.

Nationwide, Britain’s largest building society, reported that house prices rose 0.6 per cent on an annual basis in December, settling at an average of £271,068. Month on month, however, prices declined by 0.4 per cent, suggesting some softening in the market. The Bank of England’s recent decision to reduce the base rate to 3.75 per cent provides some support for future mortgage affordability, with further cuts anticipated this year.

Household savings behaviour offers additional insight into consumer sentiment. Pantheon Macroeconomics estimated that households increased savings by £12.3 billion in November, the largest monthly increase in 13 months. Analysts attributed this primarily to households attempting to position themselves ahead of tax rises announced in the recent budget, rather than evidence of broader spending restraint.

The underlying weakness in retail activity merits attention. Office for National Statistics data showed retail sales declined 0.1 per cent in November and remain 3 per cent below pre pandemic levels. Barclays’ projections for Boxing Day spending of £3.6 billion represented a significant decline from the £4.6 billion forecast for the previous year.

Looking ahead, labour market challenges pose considerable headwinds for consumer spending. Economists surveyed by The Times anticipate unemployment could rise to an 11 year high during 2026, climbing from the present 5.1 per cent rate. Such deterioration would undermine the income stability necessary to sustain healthy consumer demand and housing market activity.