People in the UK are paying ever higher interest rates in comparison with the base rate, according to the Bank of England’s latest inflation report.
Data for the latest month shows an increase in credit card rates of 15bp with an equal and opposite decrease for personal loans, other rates being static. But the general trend is of widening spreads, as is clear from the second chart.
Spreads are widening between the rates charged on overdrafts, credit cards and personal loans (“consumer credit”) and the base rate. Rates charged on variable-rate mortgages (pink line) are historically wide, although not yet rising. (Experience in Australia suggests the spread will widen once the base rate begins to increase.)
The falling supply of consumer credit (green line, first chart) may help to explain rising rates. If so, this suggests robust demand for unsecured loans (if demand and supply were falling together, we would expect more static rates). Food for thought: if banks are charging almost 20 per cent for their overdrafts, what are the current rates in the unregulated world of loan sharks?
Consumers are in a spot. But also worrying is the effectiveness of central bank monetary policy in a context of widening spreads.
