Consumers repay record amount of debt

By Sumeet Desai and David Milliken

LONDON (Reuters) - British households repaid a record amount of unsecured credit in October, chipping away at the 228 billion pound debt mountain built up over a decade of easy lending before the credit crunch.

The Bank of England data released on Monday showed credit conditions are still tight economy despite the central bank's 200 billion pound quantitative easing programme, with a fall in a key measure of money supply and mortgage approvals staying well below pre-crunch levels.

Outstanding consumer credit contracted by 579 million pounds last month, the fourth successive decline. The contraction was almost three times bigger than economists had expected and well over September's 299 million pound net repayment. Click here for a graphic on consumer credit: r.reuters.com/kuf24g.

Since July consumers have repaid more than 1.3 billion pounds of unsecured debt as tight lending criteria have limited households' ability to borrow more, despite government exhortations to banks to ease up credit.

A rising household saving rate means the Bank expects economic recovery in Britain to be driven by exports rather than the consumer demand that underpinned growth in the years leading up to the credit crunch in mid-2007.

"The Bank has identified the need for consumers to improve their balance sheets as a major factor that could limit consumer spending, and hence economic growth, for some considerable time to come," said Howard Archer, economist at IHS Global Insight.

Consumer sentiment fell in November for the first time since January, a separate survey by GfK NOP showed on Monday.

FALLING MONEY SUPPLY