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News - 24 July 2007

Shoppers start to feel the pinch

In a recent issue we questioned just how many interest rate increases and national disasters it would take to knock the stuffing out of the British shopper. We even mooted the theory that consumers have become impervious to interest rate hikes because debt is no longer taboo. But new evidence has been release this week that suggests the tide is finally turning.

Consumer credit confidence fell sharply in the second quarter of 2007, according to the Personal Credit Index from The Index, which measures financial confidence as a simple, single figure, slumped by four points (from 100 to 96) – the largest quarterly fall so far recorded. The combination of five interest rate rises and flooding in the Midlands in June are likely contributors to the drop.

Londoners have felt the pinch most as the capital’s confidence has plummeted to a record low of 89 from last quarter’s 97. If interest rates continue to rise as predicted, then London’s credit confidence may continue to tumble.

Possibly the most significant drop is among those living in Wales and the Midlands, where many are feeling the effects of one of the wettest summers on record and confidence fell nine points to 100 - the largest single drop this quarter. Flooding in mid-June seems a likely cause of negativity as homeowners had to deal with the prospect of replacing damaged possessions. With more floods currently hitting the Midlands, and with many people being hit for a second time in a month, credit confidence in the next quarter seems likely to drop even further.

The research also reveals:

  • The South continues a steady decline, dropping six points to 92; it is the only region never to have exceeded the January 2006 benchmark of 100
  • Only Scotland and the North of England are bucking the trend. There, financial confidence has risen two points – but at 99 is still below the Index starting level

Higher house prices and larger mortgages in London and South East England mean interest rate rises have had a greater impact on residents there than those in Scotland and the North. Higher confidence in Scotland, in particular, and the North may be caused by higher government spending per head in those areas than other parts of the UK.

Confidence in paying bills has also taken a knock. The number of adults who feel ‘not very confident’ of paying their bills on time has risen by half to 9%, which corresponds to nearly 3 million adults. Less than half (48%) of adult bill payers remain very confident about paying on time.

Financial strain is being felt by many Brits, with 4% of borrowers now very uncomfortable with the level of their debts. A further 8% are fairly uncomfortable about their outstanding loans, equating to a total of 4 million adults.

Jim Hodgkins, Managing Director of, said, “Although national financial confidence has not quite hit an all-time low, we’re seeing great regional fluctuation quarter on quarter and, in London, the worst regional figure ever recorded.

“Interest rates are clearly hitting Londoners and Southerners hardest as house prices are higher there – and, unfortunately for them, it’s looking as if things are going to get worse. The Midlands and Wales have also taken a knock, most likely due to the devastating floods; however those areas’ resolve and financial optimism is still largely present and ­confidence has not dipped below the benchmark of 100 since September last year.

“Many of those affected by the floods will have lost documents with personal details on; sadly some will see this as an opportunity to steal an identity for their own personal gain. Equally, people who are feeling uncomfortable with their finances should monitor how they are managing their credit.”

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