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More debt repaid than taken out for first time on record
Jonathan Prynn, Consumer Business Editor01.09.09
Britain's 16-year borrowing binge was officially declared over today as it emerged that more debt is now being paid off than taken out for the first time on record.
The historic "Micawber moment" was revealed in Bank of England figures showing that a net £635million of mortgages, loans and other forms of household debt were paid off in July.
Mr Micawber is a character in Charles Dickens's David Copperfield who lectures on the benefits of financial prudence.
It is the first time debt repayments have exceeded borrowing since monthly records began in 1993.
The figures suggest that shoppers could be battening down the hatches just as the economy is emerging from recession. City economists said it was also further evidence of the difficulty consumers are experiencing in obtaining credit from lenders.
Measures such as the reduction in VAT, the car-scrappage scheme and the Bank of England's quantative easing have been designed to keep the economy moving by encouraging consumers to spend.
Benjamin Williamson at the centre for Economics and Business Research said: "Today's news will not make happy reading for policy makers who have taken significant steps over the last year to encourage greater volumes of lending."
Krishan Rama, from the British Retail Consortium, said: "These Bank of England figures show talk of a sustained return to consumer confidence is superficial. Nervousness about the future means people are more likely to save or pay off debt, rather than spend any extra money that comes their way."
There was also a warning that the high street faces a much tougher year in 2010.
Tony Nyegate, retail business restructuring partner at accountants BDO Stoy Hayward, said: "Retailers can expect the worst of the recession to hit in 2010 when rising unemployment and structurally lower consumer credit will dampen prospects."
Britain's total personal debt fell back to £1.457trillion, with debt secured on property down by £418million and consumer debt down by £217million.
The Bank of England said: "Total net lending to individuals fell by £0.6 billion in July, showing a net repayment for the first time in the series."
Household borrowing surged over the past decade as easily available credit, rising house prices and low interest rates encouraged consumers to take on levels of debt that would have been considered reckless by previous generations.
Household debt as a proportion of annual income has risen from 99.9 per cent in 1997 to 172 per cent now.
Although the number of mortgage approvals rose for the sixth month in succession, levels are well down on previous years.
The Royal Institution of Chartered Surveyors warned that the reduced number of lenders would put a cap on any increased mortgage borrowing.
