Excessive Borrowing Raising Concerns at the Bank of England

July 25, 2017

The scale of consumer borrowing around the UK is a cause for concern for economists and should be more of worry than currently seems to be the case for lenders, according to an official from the Bank of England.

Alex Brazier, who is director of financial stability at the bank, addressed an audience recently in Liverpool and took the opportunity to warn about the dangers of excessive indebtedness among consumers.

“Household debt, like most things that are good in moderation, can be dangerous in excess,” he said.

“Dangerous to borrowers, lenders and, most importantly from our perspective, everyone else in the economy.”

Overall consumer debt levels in the UK have been rising in recent months with more and more people borrowing via credit cards and car loans.

Mr Brazier said that he fears lenders are being too quick to provide credit on the basis of what may prove to be misplaced assumptions about the lack of risks involved in doing so.

“Lenders have been the lucky beneficiaries of the benign way the economy has evolved,” he said.

“In expanding the supply of credit, they may be placing undue weight on the recent performance of credit cards and loans in benign conditions,” he said.

Making his case, Mr Brazier pointed out that household incomes have grown on average by roughly 1.5 per cent over the past year but the scale of personal loans, credit card and car loan debts have risen by as much as almost 10 per cent during that same timeframe.

He concluded that the UK’s leading lenders may be “dicing with the spiral of complacency”, which could ultimately lead to borrowers racking up more and more debt while lending standards go from “responsible to reckless very quickly”.

In June, the Bank of England’s governor Mark Carney expressed concerns that the rapidly increasing pace of personal debt growth could be storing up risks for the British economy.

These and other comments from the bank, which sets the country’s base level of interest rates, have prompted concerns that the costs of borrowing could soon be set to rise.

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