Consumers to cut retail spend as debt repayments bite

The number of homeowners taking out loans using their house as collateral will fall rapidly over the next 12 months, meaning a drastic reduction in the level of cash consumers have available for spending in the shops.

Mortgage equity withdrawals reached £41bn in 2008, but will fall to -£9.8bn in the coming year as consumers repay debts and credit lines dry up.

The economy has become too reliant on personal debt, according to Verdict consulting director Neil Saunders.

He said: "We've seen a really big explosion in debt, which is how a lot of the boom in growth has been funded. That always had to slow down.

"For retailers it's a double whammy because there's less money available on credit and money is also being put back into paying debts. We're going to see this trend continuing through 2009, but it will pick up in 2010."

Verdict is predicting consumer spending growth will be negative in 2009, falling to -0.7 per cent compared with 2.1 per cent growth in 2008. This will pick up in 2010, returning to 1 per cent growth.

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