The annual growth rate of outstanding credit card balances dropped by 12.6 per cent in the year to May as consumers paid down their credit card bills during lockdown, UK Finance figures have shown.
Credit card spending slowly recovered from £8.7bn of transactions in April to £9.6bn in May, although the latter was still 44.7 per cent lower than in May 2019.
Overall, Covid-19 contributed to a 39 per cent year-on-year drop in card spending in May, which was the final full month of the pandemic-induced lockdown.
Meanwhile, debit card transactions fell to £47.7bn in May, representing a 7.9 per cent month-on-month drop and a 7.8 per cent year-on-year decline.
Contactless transactions have increased during the pandemic, as retailers urged customers to use this method for hygiene reasons and the limit was raised to £45.
£4.5bn was spent across 440 million transactions using this method in May, up from 404 million transactions in April.
However, with restaurants, bars and pubs closed, this was down 39.1 per cent year-on-year.
“The pandemic continued to have a huge impact on how people spent their money in May, with restrictions impacting spending for both credit and debit card customers,” said Eric Leenders, managing director of personal finance at UK Finance.
“Maintaining the downward trend over the last few months, consumers continued to pay off their credit card balances in May.
“The banking and finance industry has a clear plan to help the country through this unprecedented period and has put in place a number of measures to help customers adapt to the new economic environment including the contactless limit increase to £45 and support for those struggling with their finances.
“As the economy begins to open up, we anticipate spending levels to increase and the industry will continue to support customers to help them through this difficult and uncertain time.”
At the start of June, peer-to-peer lending platform Elfin Market revealed it is preparing to launch the industry’s first physical credit card later this year.
The Elfin Card will be linked with the platform’s existing credit facility, the Elfin Purse, to allow borrowers to make transactions and withdrawals on the go.