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Wednesday, 30 January, 2002, 11:46 GMT
UK consumers fall deeper into debt
![]() Cheaper credit has kept consumer spending strong
UK consumers have shown their continued willingness to fund spending with borrowed money.
The latest lending figures from the Bank of England show that net new consumer credit reached £2.17bn in December. The figure was much higher than expectations and the fastest rate of growth since the series began in April 1993. The increase could revive fears that cheap credit is fuelling an excessive consumer boom, which might ultimately lead to a rise in interest rates. Separate figures showed that remortgaging by homeowners through banks reached £42bn in 2001 as a whole - almost twice that in 2000. The remortgaging figure reflects people switching to more attractive deals, and also individuals raising money by withdrawing equity from their houses. Credit card spending slows The Bank's data showed total net lending to individuals grew by £7.3bn last month, which was also a record rise.
The £2.2bn rise in net new consumer credit compared to an increase of £1.5bn in November, whereas analysts had only been predicting a rise of about £1.7bn. But within the overall credit figure, the use of credit cards fell to £557m from £638m the previous month. Fuelling a boom? The Bank of England is likely to study the lending figures closely, as fears have risen in recent months that cheap credit is pushing consumer spending out of control. Last year the Bank cut interest rates seven times as it tried to keep the UK economy out of recession. Interest rates are now at their lowest levels for nearly 40 years, which has cut the costs of borrowing money and paying off mortgages. This is thought to have been behind the continued strength of consumer spending - last year retail sales grew by nearly 6%. While the strength of spending has helped offset the downturn being experienced elsewhere in the economy, there have been worries that it could be stoking up inflationary pressures. Earlier this year the Governor of Bank of England Sir Edward George said interest rates may have to rise later this year if spending did not slow down.
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