Personal debt falls by £377 million
Economic uncertainty and the threat of another recession is causing consumers to take charge of their finances and cut back on debt according to the latest figures from the Bank of England.
Personal debt, excluding mortgages, fell by £377 million in December, the biggest fall since records began.
Howard Archer an economist at Global Insight said: “Consumer desire to get a tight grip on their finances is clearly the consequence of current heightened concerns over the outlook for the economy and jobs.
“Consumer confidence was at one of the lowest levels on record in December, and while it rose in January, it was still extremely weak compared to long-term norms.”
According to market research firm GfK NOP, consumer confidence recovered slightly this month, with an increase of four points to minus 29, its highest level since June 2011.
The improvement suggests that consumers are becoming more optimistic that the economy and their own finance will improve, even though GDP contracted 0.2 per cent in the final quarter of 2011.
GfK NOP attributes this improvement in consumer confidence to a fall in inflation and a sense of optimism carried over from the Christmas celebrations.
Last week Aviva published its Family Finance Report which suggests that families may be struggling with debt more that other groups.
The report suggests that family debt excluding mortgages has increased by 48 per cent in the last twelve months to £7,944.
Families have taken on another £2,500 in loans and credit card debt to fund the increase in their living costs, which have outstripped the average increase in incomes of around 7 per cent.
Credit cards account for the largest proportion of unsecured personal debt, with families owing an average of £2,314 on their cards.