Credit Card Spending Hits New High Amid Mortgage Gloom

30 November -0001

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People are spending record sums on their credit cards, the Bank of England said yesterday, amid gloom over house prices and fears of a property market collapse.

The Bank said credit card spending reached a high of £12.36 billion last month with consumers owing close to £180 billion.

It is suggested that first-time buyers, who have been increasingly priced out of the market, might have gone shopping with the money they would have spent on mortgage repayments.

Experts generally believe consumer spending is tied to house prices. Shoppers are supposed to feel more affluent when the price of their house is rising and they need to buy more white goods and furnishings when they are moving home.

The British Retail Consortium suggested that people might be spending more on entertainment and going out, since high street sales rose by only 0.6 per cent last month, and furnishings and white goods suffered particularly badly.

Credit cards have become an increasingly attractive form of debt.

The Bank of England has raised borrowing costs five times to 4.75 per cent since November, but credit card interest has remained the same, there are the offers of nought per cent on balance transfers.

The picture is unlikely to remain as buoyant; as two other surveys suggested that consumer spending was about to hit a brick wall as people come close to their debt limits.

IMF Forecasts

In other financial news the International Monetary Fund urged the Chancellor to cut spending or raise taxes, just days after his rousing speech praising his economic record at the Labour Party conference, the IMF, say the Chancellor is at risked of breaking his own rule and that he needed to start taking action next year, the most likely date for a general election.

The world's financial watchdog also urged the Bank of England to raise rates to head off inflation and urged homebuyers to take "particular caution" before entering the property market.

In its keynote world economic outlook, the IMF cut its growth forecasts for the UK by 0.1 percentage points for this year and next, taking its forecasts to 3.4 and 2.5 per cent respectively.

This leaves the IMF way out of line with the Treasury's optimistic forecasts for growth of between 3.0 and 3.5 per cent next year, which is a key support for the Treasury's forecast that it will cut the burgeoning public sector deficit.

The IMF report shows that activity in the UK remains as they say "robust" but warns that the central risk was a house prices crash. Despite signs of cooling in the housing market, prices still appear higher than can be explained, and with interest rates on a rising trend, house buyers should exercise serious caution

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