UK Consumers Pay Down Credit Cards

After a surge in credit card borrowing in 2004, British consumers slowed their use of credit cards last year and most recently, in six of the last eight months, they have cut their credit card debt absolutely. This pattern emerges from data reported today through August by the British Bankers Association for their MBBG group, the "Major British Banking Groups". In August, credit cards had net paydowns of £399 million, following £77 million in July and £260 million in June. This contrasts sharply with net increases that averaged £400 million in 2004.

Noncredit card debt activity remains greater. Consumers added £186 million in August, almost the same as June's advance of £189 million, with July at £368 million. Over the last year, these additions have averaged £321 million a month. At the same time, this is less than other recent years. In fact, it is the weakest 12-month experience since 1997. The peak usage of this form of consumer credit occurred during 2002, when 12-month averages ran right at £700 million in several months.

So consumers are reducing their reliance on credit. But retail sales data indicate that at least some forms of consumer spending are growing more vigorously, and these might be items consumers would buy on credit. Sales at clothing and household goods stores turned up in early 2005 and have accelerated since then. Outlays for services, as measured in the national accounts data, have slowed through Q2, though, and this may help explain the reduced use of consumer credit.