Consumer debt rocketing

We want it now but we want to pay for it later. Consumer debt is rocketing as we reach for our flexible friend rather than biding our time and saving for what we want.

The Bank of England is concerned by the packed high streets and the increase in borrowing which, it warns, could create a "vulnerable" situation. The Bank of England Governor, Sir Edward George, has even hinted there is a slight chance interest rates might need to rise to curb the surge in consumer spending.

Since November, sales growth has been running at its fastest since the late Eighties, with anecdotal evidence suggesting December was busier than usual. And all the major high-street stores are reporting a record new year trading period.

But UK consumer debt, now at £700bn, is a problem waiting to happen. In November it rose by £4.9bn, the biggest monthly increase since the late Eighties. True, more of us have credit cards now but it is a disturbing trend. The Credit Card Research Group says UK consumers owe £39bn on outstanding card balances, translating into massive interest for plastic providers. Though standard annual percentage rates (APRs) on credit cards range from 8 to 22.4, most people can't be bothered to shop around for the best deal. They stick with the old card provider, buy through the retailer's finance deal or go into the red at the bank, often without authorisation.

The seven interest rate cuts last year may have persuaded more of us to spend but most credit hasn't become cheaper. Credit card companies, unlike mortgage lenders, refuse to pass on the cuts to customers, claiming the market doesn't track the base rate, unlike mortgages and savings, and citing the high level of risk in credit card lending.

But this doesn't adequately explain rates as high as 18.9 per cent on HSBC and NatWest credit cards, when even the notoriously expensive Barclaycard is cheaper (17.9 per cent). Store cards are worse, with annual APRs, on average, of about 30 per cent.

The only way to stop people spending on credit is to make it harder for them to get it. But with banks able to rake in so much interest when customers go into the red, that likelihood is non-existent.