Would you credit it? Shoppers ease back on the plastic

Households reined in their borrowing following November's interest rate rise, with many people apparently heeding Barclaycard boss Matt Barrett's advice about not racking up debts on credit cards, it was revealed yesterday.

Despite the pre-Christmas trading season being fully under way, credit card borrowing was "very modest" in November, resulting in the lowest increase in net lending for 18 months, according to figures published by the big retail banks. Mortgage lending also slowed.

The new figures provide evidence that households appear to have taken on board the Bank of England's warnings about running up too much debt. They also tie in with other data showing that the latest interest rate rise contributed to many retailers experiencing lacklustre sales in November and during much of December - a situation partially rectified by booming post-Christmas sales.

New spending on credit cards was £6.74bn in November, said the British Bankers' Association. Though this was 11% higher than in November 2002, it was 3% lower than the recent monthly average. With many consumers paying their bills promptly, the seasonally adjusted increase in net lending was only £60m. This is the lowest monthly increase since May 2002 and compares with the £283m rise notched up in October.

"It was notable that card borrowing was very modest in November," said David Dooks, the BBA's head of statistics. "While cardholders maintained their levels of repayments, new spending was lower than in previous months."

The BBA refrained from commenting on whether widely reported statements by the head of Barclays, one of its members, may have had an impact. Two months ago, Mr Barrett, the bank's chief executive, admitted he did not use credit cards to borrow money "because it's too expensive", and had been urging his children to follow suit. That prompted a flurry of commentary about the perils of flexing the plastic too freely.

Some people may have switched to using other methods of borrowing. The BBA noted that lending via personal loans and overdrafts was "stronger than of late".

There was also evidence of the mortgage market slowing in the wake of the interest rate rise. Mortgage lending totalled £16.4bn last month - 8% down on October's record high of £17.8bn but still 14% above the November 2002 total. Once repayments and redemptions are taken into account, the £4.8bn rise in net lending was the lowest since May.

The quarter-point rise in interest rates to 3.75% last month was an attempt to slow the build-up in consumer debt and curb house prices. It prompted analysts to predict weaker retail sales figures in the run-up to Christmas - forecasts that were broadly proved correct. A week ago the British Retail Consortium said 2003 had not been a disaster but was "not going to be a spectacular year".

Yesterday research group SPSL, which measures the number of people entering shops, said the "rollercoaster ride" for retailers had reached its apex three days ago, with Saturday turning out to be the busiest shopping day of the year. Shopper numbers on Saturday were up 2.5% year-on-year and up an impressive 18.2% week on week.

Boxing Day was a little quieter than last year, according to SPSL's "retail traffic index", but comparisons are difficult because an estimated 20-25% more stores were open this year which means people had more choice about where to take their custom.

Tim Denison, an analyst at SPSL, said: "The number of shoppers in the early days of the post-Christmas sales is generally higher than last year - something we might not have expected, given that last year's sales were very busy."