UK credit and debit card spending ​growing​ at fastest rate since 2008

New figures show spending on credit, debit and charge cards is growing at the fastest rate since 2008, rising more than five times faster than earnings in a fresh sign of ballooning borrowing by consumers.

The number of card transactions increased by 12.3% over the year to the end of June, according to the banking trade body UK Finance, coming amid a boom in consumer debt that has been raising alarm bells at the Bank of England. The pace of growth in card payments was 10.6% in the 12 months to the end of December.

The figures illustrate a growing trend for card payments instead of cash and cheques, buoyed by contactless technology. They also underscore an alarming rate of growth for borrowing at a time when consumers are squeezed by rising inflation and a slower pace of wage growth. The consumer price index rose by 2.6% in July, while wages rose by just 2.1%.

Credit and charge card purchases rose by 9.3% in the year to June, outstripping a 7.2% increase in 2016, while debit card transactions grew by 13.2%, compared with a 11.7% rise last year.

Rapid growth in credit card borrowing was among reasons why Threadneedle Street moved to force banks to strengthen their financial position this year, asking lenders to set aside £11.4bn of extra capital to help protect the financial system from a more than 10% rise in consumer lending. However, the latest figures show credit card usage is continuing apace.

Average credit card borrowing in the three months to the end of June was £16.1bn a month, compared with £15.8bn in the first quarter of 2017, according to the UK Finance data published on Monday. “Despite a relatively low rate of economic growth and weak consumer confidence, the second quarter of the year recorded robust growth in card spending,” the report said.

The switch to plastic meant consumers made 3.2bn debit card payments worth a total of £121bn in the three months to the end of June, while credit card transactions numbered 906m, amounting to £49.7bn. Outstanding credit card debt stood at £68.5bn at the end of June, up by £900m from the end of April.

The figures illustrate the ballooning use of plastic to pay for everything from shopping to petrol, and could help to explain resilience in the British economy at a time of uncertainty over Brexit.

Although Britain’s consumers are taking a more cautious approach to shopping as their spending power is eroded by inflation above the level of earnings growth, they are still buying more food, helping to keep the growth in retail sales at 0.3% in July, according to the Office for National Statistics.

Strong food sales in stores at 1.5%, up from 1.1% a month earlier, helped offset falls in every other sector, according to the ONS, although some economists blamed wet weather for weaker sales by fashion retailers.

Spending on cards in the retail sales sector grew by £500m in the second quarter, according to UK Finance data, driven by increased spending in the mixed business – department stores, discount shops and catalogue sales – and food and drink, which were up by £500m and £100m respectively. Card payments for automotive fuels decreased by 2.6%, while spending on services decreased by £400m.

The rising levels of expenditure come as inflation remains above the Bank of England’s target for 2%, while rail fares for commuters in England and Wales will also increase by 3.6% from next year, adding pressure to incomes already squeezed by higher prices.