LONDON (Reuters) - The country's credit card companies have agreed to give some "breathing space" to customers struggling to pay off their debts after talks with government ministers on Wednesday.

This agreement will help debt-laden consumers organize their finances at a time when the latest official data released on Wednesday showed that in the third quarter, Britain's economy shrank at its fastest rate since 1990. The economic figures reinforced concerns that the economy is falling into a deep recession.

Representatives of the credit card sector were called in for a summit with Business Secretary Peter Mandelson and Consumer Affairs Minister Gareth Thomas to hear government concerns about the high level of interest rates charged on credit cards and store cards despite offical rates plunging in recent weeks as the global financial crisis unfolds.

"It was agreed that the credit card industry would report back in two weeks' time on a set of fair principles to help card borrowers to manage their debts," the industry and government said in ajoint statement.

The Department for Business said customers in difficulty would now get 30 days' grace from card companies if a debt advice agency was helping a consumer with a repayment plan.

This could be extended for a further 30 days "subject to demonstrable progress being made but not yet concluded," the two sides added.

The industry also agreed to look at its practice of risk-based repricing -- where card companies increase interest rates when they think there is a risk of default by the customer -- and report back in two weeks.

"It's these sorts of repricing decisions that have led to the sorts of cases we're unhappy about, where people have faced very significant increases in their interest rate, sometimes of 10 percentage points or more," a government spokesman said.

Stephen Sklaroff, director general of the Finance and Leasing Association, said the industry was "very keen indeed to ensure that our customers are given the best and fairest deal."  Continued...