Christmas shoppers continue to shun credit

24th November 2011  

With the Prime Minister’s Office busy lowering everyone’s expectations in advance of next Tuesday’s Autumn Statement by the Chancellor George Osborne, it’s hard to pick up a newspaper or look at the TV without running headlong into more and more depressing economic news. Evidence suggests that Osborne will announce substantially higher future Government borrowing needs than had been previously expected.

It’s perhaps for this reason that despite widespread announcements of pre-Christmas sales (some of which kicked-off as early as October) many consumers aren’t out spending on their credit cards.

The announcement yesterday that one of the UK’s most well-known companies, Thomas Cook, was having to renegotiate its banking arrangements not long before what should be one of its busiest trading periods will no doubt further reduce public and business confidence in the state of the country.

If there was ever proof needed of how the financial recklessness of a few greedy bankers could destroy the financial fabric of even the most robust companies this is surely it. Prior to the credit crunch in 2007, Thomas Cook was a thriving business valued at £3.2bn. Yesterday its equity was worth just £89m, but it now has debts of £900m. It needs another £100m from its 17 bankers to survive until after Christmas when the summer holiday booking season gets under way.

The British Bankers Association (BBA) released figures for October on Tuesday indicating that there is little demand for loans or overdrafts. Indeed consumers seem to be actively saving money with savings and personal deposits totalling £3.3bn in September and October giving a total on deposit of £644.1bn.

Credit card lending did increase marginally, but this was partly as a result of higher interest rates on existing credit card debts. The BBA statistics confirm that there was £162m more owed on credit cards than was paid off in October. You can download the complete BBA October report here.

According to the CBI overall UK retail sales did rise more than expected in October and at their sharpest rate in three months. The employer’s organisation said that 37% of its member firms indicated an improvement in sales in its monthly distributive trades survey. However, it also cautioned that growth was still way below normal levels for the time of year and that the underlying trend was still downwards. Some 26% of firms stated that sales had fallen.

David Dooks, the BBA Statistics Director said

“The mortgage market, where the high street banks provide around 70% of new lending, remains subdued and demand for unsecured borrowing is slow, reflecting householders’ caution in the current economic environment.”

For consumers who feel they have no choice but to spread the cost of Christmas using a credit card, there are some excellent deals around giving up to 15 months interest free on purchases. Market leader the Tesco Credit Card is offering 0% for 15 months, with 0% for 9 months on balance transfers if you’re still paying off last year’s Christmas debt.

They’re also running a competition where 10 fortunate cardholders will win £1,500 towards the cost of Christmas 2011! All you have to do is apply for and be accepted for a Tesco Credit Card, and each time you make a purchase using the card between now and 5th January 2012, you’ll be automatically entered for the draw to win.

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