Spending by plastic hits 11-year low

Pre-Christmas slowdown in consumer lending. Credit card purchases halved in November

Consumers' appetite for debt fell to its lowest level for 11 years in the key pre-Christmas month of November, according to figures that will strike fear into retailers' hearts but may allay fears over mounting debt levels.

Consumer credit - unsecured lending such as credit card spending, hire purchase agreements and overdrafts - rose by £927m, the Bank of England said yesterday.

This was the weakest growth since the end of 2000, and £300m lower than October's £1.21bn. The annual growth rate of 9.8 per cent was the weakest since September 1994. The biggest fall was in credit card spending, which dropped by almost half to £307m between October and November. "The slowdown in consumer credit, at a time when disposable income growth is being squeezed, should keep a lid on any meaningful consumer recovery through the first half of the year," John Butler, at HSBC, said.

Analysts said borrowers were responding to a sharp rise in the cost of servicing unsecured debt by consolidating their debts.

The gap between the average interest rate on credit cards and the base rate widened to 12.1 from 10.7 per cent over the past 18 months, while overdraft costs rose by more than 1 per cent since February, despite the quarter-point rate cut in August. Michael Saunders, at Citigroup, said: "The days of easy and apparently endless credit may be coming to an end."

He added that rising rates were a sign of a more cautious stance from lenders that would probably feed through to lower borrowings and higher savings by consumers. "A rising savings rate and modest real income growth produces sluggish consumer spending," he said.

The figures come one day after surveys of shopper traffic through the major retail centres showed a sharp fall last week after an initial rise on Boxing Day. Howard Archer, at Global Insight, said: "Consumers are still cautious in their behaviour. Consumer spending is likely to remain muted for some time to come."

FootFall, a retail analysis firm, said consumers had shunned the high street since the 7 July bombings. There was an annual decline of 3 per cent in shopper numbers in the second half of the year, compared with a 4 per cent rise in the first half. The gloom was offset by a large increase in mortgage lending and approval for new secured loans, according to the Bank's figures.

Mortgage approvals - loans agreed but not yet made that are seen as a pointer to house prices three months hence - hit an 18-month high of 115,000, more than 50 per cent higher than November 2004. Net mortgage lending jumped £1bn to £8.7bn in November, the highest amount since June 2004, when the house-price boom was just coming to an end.

It is the latest sign the housing slowdown has ended, with buyers returning to the market, transaction numbers up and prices rising modestly.

Malcolm Barr, at JP Morgan, said the rise in approvals pointed to house-price inflation rebounding by more than 10 per cent by May from its current level of 4 per cent. "We believe house prices will tend to surprise on the upside through the first half of the year as the impact of stronger house-purchase activity in late 2005 feeds into the price data," he said.

Analysts said the mixed picture between secured and unsecured lending would calm fears of a major downturn in consumer spending.

Mark Pragnell, the managing director of the analysis firm CEBR, said: "Consumers are regaining their confidence in the housing market but are showing some prudence when it comes to unsecured lending. It sounds like the perfect way for the Bank's Monetary Policy Committee to start the new year. Markets should not expect any change in rates until early summer - or beyond."