Consumers finally on the retreat

EARLY signs of sinking consumer confidence are expected this week, with figures showing a slowdown in the borrowing binge of the past four years. Indications are that both mortgage and consumer lending are shrinking as borrowers bring their debts into line with their incomes.

Since 11 September, consumer spending, fuelled by borrowed money, has kept the economy moving and helped Britain boast the strongest economic outlook of any of the major industrial nations.

But all that seems set to change. Consumer and mortgage lending figures for last month will be published on Tuesday by the British Bankers' Association. And they are likely to show millions of borrowers taking advantage of lower interest rates to cut back on debt rather than borrow more.

The association said: 'People are bringing borrowing into a sensible relationship with incomes. This has been noticeable during the past four months, and is likely to become increasingly evident.' Some workers in the public sector, where pay is rising, may borrow more. But any boost from them is likely to be more than cancelled by private sector workers paying off debt as unemployment edges back towards a million and uncertainty clouds the economic outlook.

The belt-tightening is already hitting consumer demand. Last week, official retail sales figures showed a 0.1% drop in October from September. This confirmed the gloomy picture painted by the Confederation of British Industry distributive trades survey for October. Growth in sales volume fell from the boom levels earlier this year to the average of the past 11 years, which includes the early Nineties recession.

The CBI said: 'The real slowdown, if it comes, will probably be after Christmas. But the rate of increase of borrowing is clearly going to slow.' The employers' organisation is urging Chancellor Gordon Brown to have a 'Plan B' ready if the economy starts sliding into recession in the New Year.

It is still consulting members over an emergency standby package to be put to him. But it is expected to include temporary cuts in business taxes, including National Insurance, the uniform business rate and VAT.

The latest monthly barometer of consumer confidence ordered by the European Commission will be published on November 30. October's showed confidence dropping to its lowest level since the petrol price dispute in autumn last year.