Credit card borrowing last month increased at the fastest annual rate since 2005, according to new figures from the Bank of England.
At the same time, the amount of money being deposited into accounts plummeted, as concerns grow about the rapidly increasing cost of living.
Consumer credit, which includes borrowing on credit cards, overdrafts, personal loans and car finance, was up by 6.5% on an annual basis in June.
As part of this, the annual growth rate of credit card borrowing was 12.5% – the highest rate since the 12.6% increase in November 2005.
The net flow of money going into both deposits into banks and building societies as well as NS&I accounts in June was £1.9bn – around a third of the amount deposited in May.
Laura Suter, head of personal finance at AJ Bell, said the figures are “just the tip of the iceberg”.
She said: “Once the energy price cap shifts up again in October and we all use more energy in winter, these figures will keep climbing.
“What’s more, while some people may still have savings to fall back on now, as they are exhausted more people will have to turn to debt.
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“The UK’s savings boom is also dwindling, and the amount saved dropped to its lowest level in more than five years as people don’t have anything spare to put away once they’ve paid the bills.”
Paul Heywood, chief data and analytics officer at credit information company Equifax, said higher income households are dipping into savings, while lower income households are turning to the credit industry.
“Lenders will need to find ways to service this demand responsibly and comprehensively, and should where possible be using data to fight the urge to retrench to the prime end of the market.”
Karim Haji, UK head of financial services at KPMG, said: “Major UK banks have this week reported no huge deterioration in credit quality but they are mindful of the need to support the most vulnerable customers through what will be a hugely challenging second half of the year.
“Meanwhile, reports from other parts of the economy, such as supermarkets, indicate that people are moderating their spending as far as they can to cope with the rising costs.”
It comes as the government reveals the details about the latest cost-of-living support measures, with a £400 discount on energy bills for most households, and further support for those deemed vulnerable, such as pensioners and the disabled.
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