Credit card borrowing in freefall

Consumers ditch the plastic as confidence in debt management falls and saving increases

The British passion for plastic has cooled with credit card borrowing falling to £97bn – its lowest level since 2005 – and the number of cards falling by 1.5million to a seven-year low of 60 million.

Today's Consumer Credit Confidence survey by the accountancy firm PricewaterhouseCoopers will also show a sharp fall in unsecured borrowing generally. Household borrowing has tumbled by £500 per household over the past year. And the survey will say that borrowing should fall by a further £200 per household in 2011 – a contraction of between 2 to 3 per cent – as consumers continue to pay back loans and those seeking new borrowing find it hard to get approval from banks.

However, while total unsecured borrowing fell significantly over the past 12 months to £214bn, compared with the 6 per cent growth seen in 2008, the report will warn that borrowing still remains high at £8,000 per household. And interest repayments are set to rise: PwC expects borrowing rates to increase by 2 to 3 per cent by 2015.

The survey will also suggest that changes in Britons' borrowing could have a profound economic impact. It will say: "Given the historical significance of debt-fuelled consumption to the UK economy, this prolonged contraction may impede retail sales and could be a drag on economic growth."

The survey will reveal that consumer confidence is weak. While there has been a "marginal" increase in confidence about managing existing debt, there has been a "marked deterioration in confidence about the future".

"Confidence has been eroded further since the announcement of the Government's spending review," the survey will warn. "While bad debt levels are beginning to abate, consumers' lack of confidence in managing their debt should leave lenders on high alert."

PwC researchers found that 41 per cent of people wanted to put more money away, compared with 35 per cent at the end of 2009. Within these figures, a large number of young people indicated a willingness to save, with more than 70 per cent of 18 to 24-year-olds intending to increase their savings over the next year – more than double the proportion of over 45s.

The survey also highlights concerns about the impact of banks' reluctance to deal with anyone lacking a first-class credit history, with the gap set to be filled by door-to-door lenders and pawnbrokers. "An increasing number of consumers will find themselves unable to borrow from the mainstream lenders effectively forcing them into the 'underbanked' category," the report says. Evidence of this came last week when the doorstep lender Provident Financial issued an unscheduled trading update, saying that it would beat City profit forecasts.

The growth of these industries worries campaigners for the poor. Barnado's has said that the interest rates being charged "contribute significantly to the poverty premium".

Richard Thompson, a partner at PwC, said: "There is strong evidence that the type of credit demanded by consumers is changing. Point-of-sale finance products, payday loans, home credit providers and pawnbrokers will all play their part in providing for these kinds of consumers, but the cost of credit needs simpler explanation." He also thinks more regulation is likely.

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