UK consumers are switching from credit cards to debit cards as the pressure on liquidity mounts, according to payments association Apacs.

In 2008 credit card spending increased just slightly from £124 billion in 2007 to £126 billion, while spending on debit cards rose 9% to £245 billion from £224 billion. The use of cheques fell by 10.4% compared with the previous year.

Debit cards accounted for nearly three quarters of card transactions last year, and the number of debit cards in circulation overtook the number of credit cards. The number of credit card holders fell by 2% last year, indicating that more people are trying to reduce their personal debt during the credit crunch.

A report from May last year suggests that the use of cheques id in “irrevocable decline” after 350 years in use, since fewer stores are accepting them and other payment methods are becoming more common, such as payments made using a mobile phone.

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The Bank of England has reduced the interest rate to 1% - a record low - in an effort to boost the UK’s ailing economy by encouraging more lending. This marks the fifth interest rate cut since last October, when the Bank Rate stood at 5%.

The Bank said that the rate cuts together with various government initiatives will give the economy a much needed boost by providing “a considerable stimulus to activity” as the year progresses.

However, there are concerns among business leaders that the latest interest rate cut will do little to ease the economic crisis as banks are still reluctant to lend to each other in the current climate.

Nationwide, Barclays, Lloyds TSB, Halifax and Skipton Building Society have said they will pass on the latest rate cut to customers with standard variable rate mortgages.

But some banks and building societies are worried that savers will feel they have been “punished” by the move and pull out of savings accounts, hindering the funds available to societies to lend as mortgages.

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More and more debt-laden Britons are turning to debt charities to help them through personal financial crises, one organisation claimed yesterday.

The Money Advice Trust, an organisation that provides free debt counselling, said that telephone calls from the public regarding debt issues have nearly doubled over the course of a year. The National Debtline experienced even greater demand, with a 70% increase in debt-related queries compared to this time last year.

Accoding to Credit Action, another debt charity, the total level of personal debt in Britain, including mortgages, now exceeds £1.4 trillion.

Commenting on the findings, Beccy Boden Wilks, a spokesperson at the Money Advice Trust said “The indication is that there are definitely a lot of people in difficulty, absolutely.

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Business Secretary Peter Mandelson today unveiled long-awaited plans to provide £20 billion of short-term loans to small businesses. Lord Mandelson said that the intervention was “crucial” at a time when scores of businesses were going bust every day.

Over recent months the economic downturn has resulted in a restriction in credit to UK firms, with many loan requests being refused as lenders try to protect their own balance sheets during the current financial crisis. The new plans will allow banks to lend to businesses that would normally be refused loans because of the shaky economic climate and the falling value of their assets.

As part of the measures package, a £10 billion working capital scheme will secure up to £20 billion for companies with sales of up to £500 million. An additional £1.3 billion in bank loans will be made available to small firms with a turnover of up to £25 million, and a capital for enterprise fund worth £75 million will cater for small businesses which urgently need equity.
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Manufacturing output in the UK suffered its sharpest decline in 30 years, according to official figures released today.

November’s year-on-year decline of 7.4 percent was the worst performance since 1981, according to the Office of National Statistics. The figures came as a shock to analysts, who had predicted a 6 percent fall year-on-year.

The figures just serve to highlight the troubled state of the British economy, following yesterday’s decision by the Bank of England to cut interest rates to 1.5 percent, their lowest level in the institution’s 314 year history.

Manufacturers have suffered from a decrease in demand from UK customers and stricter credit terms imposed during the current economic downturn. The fall of the Pound Sterling against the dollar and euro should have given manufacturers a boost in foreign markets, but this has been largely offset by a decrease in demand for UK goods in the US and Europe.
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Leading credit card companies have agreed to give more help to customers who are heavily in debt, after talks with government ministers on Wednesday.

Lord Mandelson, the Business Secretary, met with credit card companies and anti-poverty charities to push for fairer payment terms for credit card customers struggling to pay back their debt. In particular, he urged credit card companies to make clear to customers when rates change, as some credit card companies have been increasing their rates with little warning to customers, even as base rates have fallen sharply.

“The government is deeply concerned that borrowers aren’t getting a fair deal,” said Consumer Affairs Minister Gareth Thomas, who also attended the meeting. “That’s why we’ve taken swift action to bring the industry in to look at how costs are being applied to people’s existing debts.”

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Getting a credit report is an often overlooked but important phase of financial planning, whether you’re about to apply for a mortgage or a comparatively smaller consolidation loan.

The process of attaining reports might seem trivial, especially if you know you can make repayments and remain comfortable, but is worth doing on the off chance that whilst you may consider yourself to be financially secure, there is every chance that a lender will not, and you could end up being refused a loan. Remember that a lender’s ideal customer is one who never defaults, but one who also never repays loans early, so if you think you will be granted a loan because you have always paid well over the minimum monthly amount, think again. (more…)

One upshot of the credit crunch is that savings rates are now at their most attractive, so there’s never been a better time to put your pennies aside – available rates on cash mini Isa’s are currently hovering around 6.25-6.5 per cent, the highest they’ve been in recent years.

Also, due to the rule changes which take effect as of today, there has never been a better time for existing savers to cash in – the maximum you can save in cash in an Isa has increased from £3,000 to £3,600.

Because of this, and of the current economic climate, the already highly competitive ISA market has transformed into a veritable snakes’ nest, with financial institutions on all sides fighting for your investment. Some lenders will pay out interest on amounts as little as £1, with others requiring a more substantial deposit of around £1,000 – some banks requiring higher investments of these types are promising to pay out rates of 10 per cent; anyone fancy getting 10 per cent interest on tax free savings? (more…)