UK consumer debt slows

Consumer debt is growing at its slowest rate for the last 13 years, according to the latest Borrowing Monitor from Alliance & Leicester. The latest figures for consumer borrowing, borrowing other than for the family mortgage, is reversing the growth shown in recent years.

Borrowing has slowed to just 1.4% a year compared to the level of over 10% it has averaged over the last 10 years. It is also growing more slowly than earnings which are currently growing at 4.2% a year, and more slowly than inflation. Inflation is running at 3.6% according the Retail Prices Index or 2.4% using the newer Consumer Prices Index.

Consumers intend to reduce their borrowing further; according to Alliance & Leicester’s survey, people intending to reduce their credit card debt over the next six months outnumber those expecting to borrow more on their cards by a factor of five to one. More than eight times as many people plan to reduce their other personal borrowing as those who intend to increase it. People with mortgages are the group most likely to be reducing their debts.

Chris Rhodes, managing director of Alliance & Leicester Retail Banking, says: “People are now seeing their unsecured borrowing fall relative to their earnings. We have not seen consumer borrowing this subdued since the recession of the early 1990s. The good news is that this time the economy is performing well and employment is at an historic high.

“Although the economy now appears more benign, people on lower incomes in social housing are affected disproportionately by inflationary pressures. The prices of many non discretionary items such as energy have risen fast and these take a bigger bite out of their incomes, even though they do not have mortgages to pay.

“People seem less willing to pay back their debts than in the past. This trend is highest amongst non-homeowners. The rapid growth of companies that encourage borrowers into taking our Individual Voluntary Arrangements as a solution to their debts is partly to blame. By taking what is being marketed as an easy option, many people are unfortunately not considering the long-term consequences.”