Rate rise slashes borrowing

HOUSEHOLD borrowing slumped last month in the first sign that higher interest rates have dampened consumers' appetite for debt.

Easing fears that Britain is on the brink of a debt crisis, Bank of England figures today showed consumer credit - which includes borrowing via credit cards, store cards, loans and bank overdrafts - rose by £834m in December, a month after the base rate was lifted by a quarter-point to 3.75%.

It was the smallest one-month increase for three years and down sharply from £1.4bn in November.

Spending on credit cards rose by only £135m compared with £475m the previous month and £566m in December 2002.

The latest figure was the weakest since January 1997 and followed Barclaycard boss Matt Barrett's admission to MPs that he would never borrow on a credit card because they were too expensive.

Mortgage borrowing also slowed dramatically - from £8.6bn to £7.2bn - in the latest sign that the housing boom is running out of steam. Nationwide said yesterday house prices rose by 0.7% in January compared with 1.5% in December.

Economists said the Bank's monetary policy committee would be relieved to see that its actions had forced consumers to rein in their borrowing. But they said the news would not prevent the MPC from raising rates to 4% next Thursday.

Richard Iley at BNP Paribas said: 'This is unlikely to stop the MPC raising rates next week but supports our view that the consumer borrowing binge is close to blowing itself out.'

However, a sustained slowdown would reduce the need for further rate increases. The cost of borrowing is expected to end the year at 4.75%.