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Consumer Spending To Fall With Possibility Further Interest Rate Rises

A general fear that overspending by Brits over the Christmas and New Year period will not help to control UK inflation, and after the Bank of England raised interest rates twice late last year to 5%, a new report by HBOS indicates that Brits are now catching on to the savings bug and that there will be a general overall reduction in UK loan and credit card debt in the first quarter of 2007.

Mindful that there is a growing trend among Brits to save more and borrow less, a number of leading UK banks and building societies are now turning their marketing strategies away from debt products and are looking to entice new business from UK savers.

At this time, primarily the new savings products being offered by banks contain stringent conditions that you need to keep an eye on. A case in example, the mouthwatering 12.5% that Barclays are offering savers who sign up to a Regular Saver account before 28 February. Although an initial look at the promotional material makes this look like a deal you would be silly to miss, the small print will show you that the 12.5% interest is gross over a period of 12 months and only applies to a maximum of £3,000 of savings on regular deposits of between £25 and £250 per month. Moreover, an accountholder needs to be an existing customer of the bank on the day the Regular Saver account is opened - with minimum deposits into their current account of not less than £1,000.

Nevertheless, after several decades where Brits have acquired a somewhat unwanted label of being among the world’s biggest spenders, a move away from enticing unwary Brits into loans and credit card debts they’re unable, and in some cases even unexpected, to repay is a move in the right direction by UK banks.

Commenting on the growing trend among UK households to save more and borrow less, Martin Ellis, chief economist of HBOS, said: “We’ve seen sizeable increases in previous years, but more caution in terms of borrowing has led to households saving more. We are also seeing a period where consumer spending is softer.”

Nevertheless, while Brits may be reluctant to borrow more under current conditions, and while we may be more likely to save now than at any time in the past decade, one area where this doesn’t seem to apply is with mortgages applications for home purchases. With a record level of mortgage applications for the month of November 2006, it would appear we’re still willing to take the risk of borrowing money at high interest rates if it means we can buy a new home.

Alisdair Milton
14th January 2007


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