As COVID-19 brings the world and the UK together, it’s heart-warming to look at whatever silver linings we can find amidst the challenge of the pandemic.
In a surprising turn of events, one of those has been the remarkable upturn in consumer debt repayments during the lockdown.
We’re seeing an incredible £7.4bn paid in this recent period alone, with the Bank of England showing a stunning £5bn in credit card debt as being paid off in April alone.
Trimmed by necessity
The reason, of course, is clear: consumers are isolated away from the supermarkets and high streets where they previously purchased goods and services. We’re now seeing, according to the Bank of England, the largest net repayment of debts owed by British households since records officially began in 1993. The £5bn amount reported as being repaid in April was double the amount on record for the month prior.
As adults across the country find themselves without commutes and the enticing ease of in-person leisurely spending, money previously lost to disposable income is being rerouted into clearing debts
and preparing for the months ahead.
An unpredictable increase
What’s harder to say, however, is just how long this boost in consumer debt repayment is set to last. The amount of outstanding credit card debt in the UK stands at no less than £64bn, and many adults and households in the country are facing immediate uncertainty in regard to their income as furloughs and government support varies.
What has begun as an immediate and positive boost to debt repayment may fall to nothing, or worse backfire as household incomes fall and savings are turned to in order to survive fluctuations of income in the months ahead.
Despite the encouraging debt repayment figure, then, the future remains uncertain. We’re now seeing a divide created in the economy of our country, where some households are seeing a genuine benefit to an enforced reduction to their disposable income and spending habits – and other seeing their livelihoods and incomes drastically slashed as jobs are lost and furlough results are often limited in extent.
Repayments amidst a slowdown
The wider scope is important to keep in mind, however. In the past few years, the amount of consumer debt has been rising – especially on credit cards and any other kind of long term lender. In total, we’ve seen borrowing in the UK exceed the levels we saw before the 2008 financial crisis. This trend was starting to slow down before the COVID-19 pandemic struck in full force, however, potentially due to uncertainty over the future of the country and economy following Brexit and the general election.
With short-term funding options dwindling in the present months, we’re now seeing a shift in the private sector too. Businesses debts are rising, largely due to the sudden and sharp decrease in sales. While consumers are in many cases benefiting in their ability to repay debt, the lack of commerce is reflected in a suddenly and seriously struggling business landscape.
UK private sector businesses have felt this pinch to the tune of an £8.4bnn increase in bank debt in April alone – a serious bump on top of the already significant £30.2bn loaned in March right after COVID-19 struck in full force.
Looking ahead
With the future of COVID-19 still remaining uncertain until a vaccine is made available, predictions on further consumer debt repayment are difficult to make. With the government’s response catching up steadily to the needs of business owners and employees, it is generally expected that consumers will remain cautious in their spending in a bid to protect themselves from government funding that may dry up or prove inadequate in maintaining a household as isolation continues.
Despite the uncertainty caused by COVID-19, however, it is undeniably a positive point to appreciate that a significant amount of consumer debt has been wiped away in recent time. As we stand together to weather the storm of the pandemic in the months ahead, we wish every adult and family across the country the best of health and fortune.
