British households repaid record amounts of debt racked up on credit cards and personal loans in April as consumers stayed away from the high street during lockdown.
Figures from the Bank of England show £7.4bn of consumer credit was repaid during the first full month of strict restrictions on business and social life, the largest net repayment since records began in 1993.
Reflecting a record plunge in retail spending in April as people stayed indoors, the Bank said £5bn in credit card debt was paid off in April, more than double the previous month and far more than the typical £300m paid back monthly by consumers.
However, outstanding debts on credit cards remain about £64bn. Experts also warned that while many households managed to repay their debts during lockdown, the hit to workers’ wages and rising job losses at the onset of the deepest recession in living memory would force others deep into the red.
Laura Suter, a personal finance analyst at the investment platform AJ Bell, said: “The lockdown has created a divide in the country, with some households seeing cuts to income, job losses or being furloughed, while others are seeing their finances benefit from an enforced halt to much of their spending.”
Consumers had been racking up increasingly higher levels of debt on credit cards, personal loans and car finance in recent years, with total borrowing surpassing the levels recorded before the 2008 financial crisis.
However, the pace of growth in consumer borrowing had started to slow before the crisis struck, with households making the first net repayment of credit card debt in almost seven years in December, amid a slowdown in spending ahead of Christmas amid uncertainty over the general election and Brexit.
As consumers rein in their spending, the figures from the Bank showed a sharp increase in business debts triggered by the steep decline in sales.
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In a reflection of the rush to raise short-term funding as income evaporates, UK private sector businesses took on a further £8.4bn of bank debt in April, on top of a record £30.2bn borrowed in March as the Covid-19 crisis struck.
Thomas Pugh, a UK economist at Capital Economics, said households were likely to have continued paying down their debts in May as lockdown measures continued, while businesses probably borrowed more to stay afloat.
“But even when the lockdown is lifted, consumers are likely to remain cautious and many firms will struggle with low demand and the mountain of new debt,” he said.