Consumers facing sharp rise in borrowing rates

Published on Tuesday 11 December 2007 12:18

BORROWING costs are set to rise again, despite the reduction of UK interest rates last week.

Analysts have warned millions of people will feel the effects of the credit crunch next year.

The last three weeks of November have been the worst on record in the credit market, with banks refusing to lend each other money. Experts now believe these problems will be passed on to the consumer in the form of a steep rise in borrowing charges.

It will mean big-spending Christmas shoppers, who are predicted to shell out a record 11.7 billion on credit cards this year, will be hit by higher rates.

Peter Hahn, a former managing director at Citigroup, said loans were likely to incur higher charges as banks seek to protect their profits.

"Banks will be more capital-conscious and wary of risk," he said. "If you are a borrower, you will have to pay higher rates."

The warnings were sparked by news of 4.9 billion writedowns at Swiss investment bank UBS. The fall-out from the crunch is also expected to mean tens of thousands of junior bankers will get no bonus this year.