The UK’s Credit Card Comeback: A Sign of Strength or a Brewing Debt Crisis?
Love, and apparently, credit, can be expensive. Recent data reveals a significant resurgence in UK credit card usage, with consumer debt hitting record levels. But is this a positive indicator of economic confidence, or a worrying sign of households relying on credit to develop ends meet?
Record-Breaking Debt and Bank Expansion
NatWest, Lloyds, Santander UK, and Barclays all reported double-digit percentage growth in their credit card books throughout 2025. The Bank of England reported a 12.4% year-on-year increase in net credit card lending in December, pushing outstanding debt to an all-time high of £78 billion. This trend is prompting observers to question the sustainability of this renewed “romance” between UK banks and borrowers.
Two Sides of the Coin: Optimism vs. Pessimism
The interpretation of this data is divided. A pessimistic view suggests consumers are increasingly reliant on credit due to persistent inflation and potential job losses. Conversely, optimists witness it as a sign of growing consumer confidence and banks regaining their footing after years of cautious lending.
Consumer Confidence and Economic Indicators
Interestingly, the GfK consumer confidence survey indicates households are feeling positive about their personal finances, despite broader economic concerns. Willingness to make major purchases is at its highest level since early 2022. Loan delinquency rates remain low, and household savings are relatively high. The Bank of England estimates that debt repayments currently consume around half the share of household income compared to pre-financial crisis levels.
Unemployment and Lending Growth
While unemployment recently reached a post-pandemic peak of 5.2%, banks appear well-positioned to absorb the increase. Initial credit card lending increases were based on forecasts of a more rapid rise in unemployment, suggesting banks have built buffers into their risk assessments. Adjusting for inflation, the average rate of lending growth since 2022 aligns with pre-pandemic averages.
The “Buy Now, Pay Later” Disruption and the Resilience of Traditional Credit
The continued strength of traditional credit cards presents a challenge to newer “buy now, pay later” (BNPL) services like Klarna. Once valued more highly than Barclays, Klarna’s current market capitalization is significantly lower, demonstrating a shift back towards established credit products. This suggests that concerns about credit card debt from previous generations haven’t entirely deterred younger consumers.
What Does This Mean for the Future?
The UK’s credit card market is experiencing a complex dynamic. While rising debt levels warrant attention, current economic indicators suggest a more nuanced picture than a simple debt crisis. The resilience of credit cards highlights the enduring appeal of traditional financial products and poses questions for the future of BNPL services.
FAQ
Q: Is UK consumer debt a cause for concern?
A: While debt levels are high, low delinquency rates and healthy household savings suggest the situation is currently manageable.
Q: What is driving the increase in credit card usage?
A: A combination of factors, including increased consumer confidence and banks actively expanding credit availability.
Q: How are “buy now, pay later” services performing in this environment?
A: BNPL services are facing challenges as traditional credit cards regain popularity.
Q: What impact could potential job losses have on this trend?
A: Increased unemployment could lead to higher delinquency rates, but banks appear prepared for a moderate increase.
Did you know? Barclays is now worth approximately 12 times more than Klarna, a dramatic reversal from 2021 when Klarna’s valuation exceeded Barclays’.
Pro Tip: Regularly review your credit card statements and prioritize paying off balances to avoid accumulating high-interest debt.
Reader Question: “I’m worried about rising interest rates. Should I avoid using my credit card?”
Answer: It’s wise to be cautious. If you can’t pay off your balance in full each month, consider limiting your credit card spending to avoid accumulating interest charges.
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