Record rise in borrowing

Credit card borrowing surged by a record amount last month - partly fuelled by consumers flocking to take advantage of low rate deals - raising fears that the economy may not be slowing down as quickly as had been thought.

Borrowing on credit cards rose by £490m in May, almost three times the rise seen in April and the biggest since the British Bankers' Association's records began in 1986.

While the BBA said the new figures had been "inflated" by card issuers offering low rate debt consolidation deals, they could send a signal to the Bank of England that further interest rate rises may be needed to keep consumer spending in check. They will also add weight to concerns expressed by the financial services authority about soaring consumer lending.

Total lending by the major British banks to the private sector, including individuals, rose by £5.09bn in May, compared with a £2.87bn rise the previous month, said the BBA.

The credit card figures partly reflect the cutthroat competition in the credit card market which has resulted in the lowest introductory interest rates ever seen in the UK.

There have been four interest rate rises since September 1 last year, but many credit card rates have actually fallen over the same period.

Nationwide building society last month reduced its introductory annual percentage rate for purchases to 3.5%, and Capital One Bank has slashed its rate to 3.9%.

Meanwhile the Tesco Visa card has cut its interest rate three times since May 1999; in one month alone it received 250,000 applications.

The last few months have also seen a plethora of low cost deals for those looking to transfer their outstanding credit card balances to another provider. Even Barclaycard, the UK's most popular card, was recently forced to cut its rate for balance transfers in a bid to keep new entrants to the market at bay.

"There is a lot more competition out there, there are a lot more cards, and a lot more ways of using your card," said Kathy Lewis, assistant director of the Credit Card Research Group. One of the areas seeing the strongest spending growth is the service sector. There were also new figures yesterday showing that mortgage lending bounced back in May following a temporary lull the previous month - with remortgaging making up a growing chunk of the total.

Gross mortgage lending rose to £10.3bn - up significantly on April's figure of £9.2bn but lower than the £10.7bn achieved in March, said the Council of Mortgage Lenders.

Remortgaging rose from £2.5bn in April to £3bn in May, while the proportion of loans for first-time buyers fell sharply, from 45% to 37%.