Credit card debt starts to fall in the UK

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Is this a sign we are heading in recession and peoplea re starting to worry about how much money they owe.


Credit card debt has fallen for the first time since May 1994, the British Bankers' Association (BBA) said.
During April, cardholders paid £40m more off their credit card than they spent and over the past six months the rise in new card debt has slowed.

Recently, High Street sales figures have shown year-on-year growth slipping to its weakest in two years.

But, the BBA said the fall in card debt could be temporary, adding that loan and mortgage borrowing had risen.

The fall in credit card debt comes against a backdrop of retailers such as Next and Boots reporting lower sales.

Both the Confederation of British Industry (CBI) and the British Retail Consortium have warned that High Street sales are weak.

The small drop in credit card debt could be seen as further indication of a slowdown in High Street spending.

"This is another indication that the consumer is being more cautious in the light of lower household disposable income. The household belt is tightening," David Dooks, BBA spokesman said.

The six monthly average for new credit card debt has fallen from £0.5bn last August to £0.2bn in April, the BBA said.

But on Thursday figures from the Office for National Statistics (ONS) showed retail sales had risen by 0.5% in April. On a yearly basis sales slipped to 2.3% from 2.4% a month earlier.

Retail sales have fallen in response to five increases in UK interest rates since November 2003.

Any renewed spending in April will not show up on peoples' credit card statements until May, Mr Dooks concluded.

Mortgage debt rising

Mortgage, personal loan and overdraft debt all showed increases in April.

According to the Council of Mortgage Lenders (CML) mortgage lending rose from £20bn in March to £21.5bn in April.

The BBA and Building Societies Association (BSA) both reported a small fall in mortgage lending, but the falls were far less dramatic than those seen in the second half of 2004.

Adrian Coles, director general of the BSA said the mortgage market had "achieved a soft landing".

The BBA added that personal loan and overdraft debt had increased by £415m during April.

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UK High Street retail sales are still in the doldrums with the latest figures showing year-on-year growth slipping to its weakest in two years.
Though monthly retail sales showed a surprise 0.5% rise in April, on a yearly basis sales slipped to 2.3% from 2.4% in the previous month.

The yearly rise was the lowest since April 2003, according to the Office for National Statistics (ONS).

On a quarterly basis, sales grew 0.2%, the same as in the previous quarter.

High Street blues

The monthly upturn in April contrasts with a slew of reports from High Street names, all reporting difficult trading conditions.

On Thursday, health and beauty retailer Boots posted an 11% fall in annual profits following its profits warning in March.

Clothing retailer Next warned this week that the decline in underlying sales had accelerated.

The fact that Easter came early this year might have influenced the figures, the ONS said.

Still weak

The figures contrast with weak surveys from the CBI and the British Retail Consortium earlier this month.

"I don't think the figures are quite as strong as the headline number suggests they might be," said George Buckley, economist at Deutsche Bank.

"Non-food sales have been flat for a considerable amount of time now. If you strip out food, you are seeing significant weakness."

Retailers of household goods only managed to lift volumes by 0.3% despite heavy discounting.

"Overall, the consumer is not in recession, as some surveys suggest, but the slowdown seems entrenched," said John Bulter, economist at HSBC.

The latest figures are unlikely to have any impact on base rates, analysts say.