The UK credit card market is unsustainable and heading for a huge shake-up, PricewaterhouseCoopers says in its Precious Plastic report, published today. It says that consumers are cooling on credit cards, while card providers face limits on funding and more regulation.

The report forecasts that monthly or annual fees will become the norm. Paul Rodford, of the UK Cards Association, said that consumers would have fewer cards to choose from.

The Consumer Credit Directive, due next June, will raise the burden of regulation on card providers, which will have to provide more substantial additionalinformation to potential customers before they sign up.

Competition will be further fuelled by the arrival of additional card providers, PwC says.

The Government, keen to dispose of its stakes in nationalised lenders such as Northern Rock and Bradford & Bingley, has made clear that it wants new competitors to enter the market.

Over the nine months to the end of September lending to consumers reached £1.5 trillion, flat against the same period last year, according to figures from the Bank of England. The growth rate in lending has been slowing for four years.

Within that figure, unsecured borrowing - mainly personal loans and credit cards - was also virtually unchanged at about £230 billion, having grown by 6 per cent during the previous year, according to the Bank.

PwC predicts that bad debts, currently at 6 per cent of current card balances, will rise to 9 per cent by the end of next year.

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