Consumers Spend Big but Payback Time Still Awaits ; NEWS ANALYSIS Retail Sales Are Buoyant and Consumer Confidence Is Up. So Why Are Economists Worried?

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AS CHRISTMAS approaches, credit card spending is soaring, retailers are upbeat and even house prices are back on the rise. Consumers may be having a ball right now, but is it only a matter of time before their piling debt silences the ringing of the tills?

Judging by the official data, consumer confidence has recovered sharply following 11 September. The Confederation of British Industry yesterday said 50 per cent of retailers enjoyed higher sales volumes last month, against only 21 per cent suffering a decline. The positive balance of 29 compares with a figure of only 19 the previous month.

The Credit Card Research Group backed up the findings with the prediction that shoppers would slap some pounds 19bn on credit and debit cards this month, a climb of 14 per cent on last December. Big ticket household items such as televisions and sofas are fuelling the rise.

And there was a surge in visits to shopping centres last week, with FootFall, the research agency, reporting an 8.2 per cent rise in shopper numbers. "It appears that people may well be redirecting their spending from holidays and flights and going shopping instead," a spokesman said.

Meanwhile, Nationwide, the UK's largest building society, said house prices rebounded in November, with average prices jumping 0.7 per cent during the month, reversing the 0.5 per cent decline seen during October. Average UK property prices are now 12.8 per cent higher than the previous year. The data hardened the view of almost all economists that the Bank of England's Monetary Policy Committee will leave rates unchanged when it makes its monthly announcement at lunchtime today.

John Butler, UK economist at HSBC, said consumers' extravagant behaviour was entirely rational given interest rates are at a 38- year low, and unemployment, while rising, is at a 35-year low. That meant consumer spending should continue to rise during 2002, albeit at a slower rate than this year. But he warned that rising household debt could also be a time bomb poised to explode when interest rates rise, making it more costly to service debt.

"People holding their breath for consumer confidence and the housing market to collapse could be waiting a long time," he said. "But the worst case scenario is that sterling weakens and rates are put up to combat inflation."

Mr Butler expects base interest rates to be at 5.0 per cent by the end of next year, with further rises likely throughout 2003. …