The British love affair with credit is continuing to fuel the economy, with the average adult owing more than £1,100 on his or her credit cards, research claimed yesterday.
Credit card debt has risen by nearly two-thirds over the past four years, with the UK's total outstanding debt on cards hitting £53.5bn last year, a report by Datamonitor found.
Fresh proof that the country is reliant on plastic comes as an upbeat report on British businesses prompted economists to predict that the Bank of England would raise the base rate by 25 basis points next month.
Even the manufacturing sector appeared to be showing signs of confidence in the first quarter of 2004, according to a survey of more than 6,000 companies by the British Chambers of Commerce that found a number of the key indicators were at their best levels since 1997.
Although the buoyant snapshot of manufacturers was again at odds with gloomy official data, which last week found the sector suffering its worst fall in output for almost a year, analysts said growth looked likely to remain above trend.
The Bank's decision last week to hold rates at 4 per cent provided a stay of execution for the country's credit lovers, who would be caught out by any sudden increase in the base rate, Kieran Hughes, at Datamonitor, said. Adults owed an average of £1,140 each on their credit cards at the end of 2003, up from £719 in 1999, the research found.
"Rate tarts", who use their cards to borrow money for a short period, helped the total number of cards in circulation to soar by 58 per cent during the past four years to 65.5 million, Mr Hughes said. By 2008, he predicted, there would be almost two credit cards in circulation for every adult in the UK.
The report said the strong growth in cards suggested that British consumers were becoming more comfortable with using them, and showed the market had defied predictions that it was becoming saturated.
With so many people vulnerable to the whim of the Bank's Monetary Policy Committee, the report said interest rate rises could put pressure on mortgage repayments and "may have a knock-on effect on the ability of some consumers to repay their credit card balances".
Mr Hughes added: "This growth in credit cards will only be of concern if consumers become unable to pay it back." But intense competition between banks and retailers would help the "financially aware to keep their interest payments low".
Meanwhile David Kearn, the BCC's economic adviser, said the Bank would have to raise interest rates if the economic recovery continued to gather pace. But he added: "We urge [the MPC] to maintain a cautious stance, taking fully into account the problems faced by the manufacturing sector and the strength of sterling."
The survey found manufacturers reporting higher orders, sales, employment, confidence and cash flow, while the service sector consolidated gains made at the end of last year.Reuse content