Borrowers are 'paying too much'

Christmas shoppers are fuelling the credit boom

Consumer debt is growing faster than ever, according to a report from the research firm Datamonitor.

"If there is only a small rise in unemployment then the numbers of people in debt difficulties could rise dramatically."

Amy Brown Consumer Credit Counselling Service

With Christmas High Street spending in full swing, consumers are favouring credit cards and unsecured personal loans, the research found.

The UK's credit explosion is being fuelled by confidence in the housing market, making many people feel more wealthy.

Some are also taking advantage of low interest rates to borrow money against the value of their homes.

But despite the lowest interest rates for a generation, many lenders are not passing on savings to customers.

The biggest High Street banks, the report concludes, have succeeded in increasing their profit margin by maintaining their higher prices even when Bank of England base rates fell last year.

Debt mountain

Datamonitor said that by the end of 2002, UK consumers would owe more than £158bn ($251bn) to credit card and loan companies.

That is 12% more than a year ago.

it said there was buoyant demand for car loans, reflecting the rise in new car sales.

House prices rises have boosted confidence

Amy Brown, spokeswoman at the debt charity the Consumer Credit Counselling Service told BBC News Online she was unsurprised at the revelation.

"In real terms it is no cheaper to borrow than it was five years ago," she said.

"Many of the best offers are only introductory and are being used by consumers that chop and change between providers to mask personal debt."

As for the debt mountain being piled high by UK consumers, Ms Brown said the charity had moved from urging for consumer caution to grave concern.

"If there is only a small rise in unemployment then the numbers of people in debt difficulties could rise dramatically."