Shoppers are shunning credit cards as rally stalls

In a week marked by the collapse of retailers Jane Norman and TJ Hughes and a raft of store closures from Thorntons, Bank of England lending figures showed worried shoppers shying away from hitting the plastic last month.

Credit card borrowing was at its lowest ebb for more than a year in May, growing by just £34 million as soaring inflation forced hard-pressed shoppers to retrench on their finances.

Overall consumer credit also slowed sharply, falling from £539 million to £173 million, the lowest since January.

The gloom comes after official figures confirmed the biggest squeeze in disposable incomes for more than 30 years over the past 12 months.

IHS Global Insight's Howard Archer said: "Consumer appetite for taking on new borrowing clearly remains limited while there is also an ongoing desire of many consumers to reduce their debt."

There were few signs of comfort elsewhere for the economy on a day when Greece threatened to add to the turmoil with a nail-biting vote on a 28 billion (£25.1 billion) austerity package to save the country from bankruptcy.

A slew of figures revealed a dramatic plunge in output for the UK's services firms, a sluggish mortgage market and a fall in bank lending to businesses.

The services sector, which accounts for three quarters of the economy, sank by 1.2% in April, hindered by the Royal Wedding and the extended holiday season and the hottest April on record. It was the biggest drop in output for the sector since January 2010.

Lending figures offered more evidence of a virtually stagnant mortgage market in May after banks granted 45,940 home loans, fewer than expected.

Accompanying figures showed bank lending to business falling by £3.7 billion during the same month, the lowest since last September.

Barclays Capital's Blerina Uruci said: "Credit conditions continue to be subdued in the UK with mortgage activity and consumer spending well below the levels seen prior to the financial crisis."

Financial information firm Markit predicted a slowdown for the overall economy between April and June. Chief economist Chris Williamson said: "GDP as a whole will struggle to show more than a 0.3% gain in the second quarter, down from 0.5% in the first three months of the year."