February 3, 2010
-
News: UK CC Spending Increases In December
A struggling economy moved UK residents to modify borrowing habits with credit cards, mortgage loans, and consumer loans over the past year or two. Over the past year, many cardholders significantly reduced credit card spending and made a concerted effort to pay down debt. Unlike in the U.S. where consumers continue to hold back on unsecured borrowing in the wake of a continued housing market crisis and high unemployment, the UK housing and mortgage markets have picked up. During the month of December, for the first time in six months, unsecured borrowing including credit card spending rose £52m whereas the number of new mortgage loans opened decreased from the previous month.
The trend to pay down credit card debit was not surprising in view of current economic conditions; interest bearing savings accounts have been so low that it only made sense to pay down the higher interest rate debt. The Bank of England reported that the demand for personal and mortgage loans remained low, however, credit card spending increased by £195m. Some remain skeptical believe the increase is a temporary response to avoid the VAT increase and will decline once again in a month or two. Overall lending to consumers increased by £1.2bn in December, nearly doubling a six month average.
Building societies lending to consumers fell in December by £283m from the same period the previous year. Brian Morris, Head of Savings at the Building Societies Association (BSA) said that as long as the bank interest rate remains low, consumers will continue to face difficulty as inflation returns. However, it is not surprising that credit card spending increased during December because consumers typically save less as the holiday shopping season gears up for Christmas and the VAT returns to 17.5 percent. The bank rate is not expected to increase any time soon making it difficult for building societies to entice consumers to deposit savings.