June 18, 2005

The recent rise in interest rates seems to have had an effect on the consumer and their attitude towards spending, as the rise has given the consumer some food for thought, regarding the way that they will have to curb their spending, to stop them sliding down the slippery slope to financial ruin.

That has been reflected in the month of April this year, which saw a fall in the debt that we owe of £40 million, the first fall in a period of 10 years, though this still sees us owing credit card companies to the tune of £33.9 billion, it has come as no surprise that the credit card holders of the U.K, feel that the time is right to reduce the amount of debt that they currently have.

People’s worries have really come about, with what the current situation is with British economy at the moment, this ultimately leads to job fears of your own as we hear and read of job looses around the country, so we feel the need to try and cut back in our spending and what we save by doing this, we then in turn put it into reducing our debt, just in-case the situation where we lose or jobs may arise.

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Consumer spending is a big factor in the country’s economy and with people spending less to curb the chances of financial difficulties in the event of loosing their jobs, and then this will make the current situation, have more of an effect on the high street, which in turn will mean less sales for the shops and stores, which will ultimately lead to retail having to let some of they’re staff go.

The highest profile case in which the economy has shown the effect of factory closures, was the recent announcement of the car manufacturer Rover’s demise, has seen the consumer think again regarding their spending, though there can be another reason that the level of debt fell by £40 million, is the fact that many consumers may be trying to clear their from the Christmas spending, to leave them free to pay for the summer holiday period.

Other small factors in the way that the consumer has changed their spending practices, has seen the average monthly amount of transactions fall to under 10 a month, a drop of 5.2% and new only saw a 3% issue for that month, were debit cards that need the necessary funds in the bank before you can purchase your goods, were up 17.5% in new ones issued, showing that people are trying to stay away from credit if they can help it.

This does not mean the end of the credit market, far from it, as there is still a 10% growth rate per year, but that will mean that the more the credit growth, the more chance of people having to declare themselves as bankrupt. Current levels are at a high at the moment and banks have recently seen record bad loans having to written off, the highest since 1993 and that was the year that records began.