Shoppers splash out with plastic

BY DIANE COYLE

Economics Correspondent

Spending on credit and debit cards jumped last month, with consumers continuing to switch from cash to cards for making payments.

The amount paid by plastic came to £4.9bn, which was 18 per cent higher than in the previous February and equal to just over two-fifths of total retail spending.

Use of debit cards has grown even faster than spending on credit cards, according to the Credit Card Research Group, which collects statistics on all payments by card in the UK.

Debit payments rose 24.8 per cent in 12 months, and credit card spending by 14.6 per cent. Over the same period the value of retail sales rose by only 4.6 per cent.

Reflecting the pattern of sales, credit and debit card spending has grown fastest in sectors such as food and drink (26 per cent up year on year) and services (30 per cent higher). So have plastic payments in outlets such as record and book stores, computer shops and pet shops.

Card payments in housing-related stores - such as DIY shops, garden centres and electrical goods retailers - grew at a more sedate pace, rising 7 per cent in the year to February.

Elizabeth Phillips, director of the Credit Card Research Group, said: "Spending by sector is mirroring the pattern of the economic recovery."

Economists suggest that there is an element of "distress borrowing" in the strong credit card figures. But in the main, the plastic payment boom reflects the rapid spread of the number of outlets that accept cards. This has been very noticeable in the case of food and drink retailers, which now account for about half of all debit card spending and an eighth of credit card spending, with an average transaction value of just over £40.

The average credit card payment last year was £45, and the average debit payment £28. Ms Phillips said: "People tend to use debit cards for cheaper transactions. It is replacing the use of cash and cheques."

According to Peter Spencer, professor of financial economics at Birkbeck College in London, there has been a progressive switch away from cash for two decades, with the exception of a small rise in cash payments in 1993.

The reason was the improved technology for using cards to make payments, he said.