New Debt Boom ‘Could Leave British Borrowers Vulnerable’

July 16, 2015

A new debt boom could be leaving UK consumers vulnerable to financial strain and serious difficulty if economic conditions were to worsen in the coming months and years.

That’s according to the international credit ratings agency Moody’s, which has published a new report claiming that the rate at which debts are being taken on by individuals and households in the UK is outstripping wage growth.

The worry is that there are consumers around the country taking on levels of debt which might only be sustainable in the near term and which could become more burdensome than anticipated if the UK economy were to take a turn for the worse.

Moody’s reports that consumer spending around the UK is already higher than was the case prior to the financial crisis, which presented millions of indebted Brits with serious financial headaches to contend with in 2008, 2009 and beyond.

“Low interest rates are hiding the risk to consumers, making consumer debt appear more affordable on the surface, but masking potentially negative long-term consequences,” said Greg O’Reilly, an assistant vice president and leading analyst at Moody’s.

“Consumer spending has surpassed pre-crisis levels, at a time when growth in unsecured consumer debt is outstripping wage growth,” he noted.

Despite its concerns, Moody’s takes the view that relatively low levels of unemployment and extremely low interest rates should help to ensure that British consumers can keep up with their debt repayments at least for the foreseeable future.

However, on the other hand, there are fears that a lack of wage growth and relatively low levels of savings are leaving Brits with limited financial flexibility in many cases.

The rating agency’s research suggests that both consumer spending and our appetite for debt has expanded very considerably in the UK since 2012 with unsecured lending to individuals around the country having jumped by 7 per cent year-on-year for the past 3 years.

Last month, the British Bankers’ Association reported that the rate of unsecured borrowing among consumers around the UK is increasing at an annual rate of 5 per cent, the fastest pace of growth recorded since 2010.

John Baird

Insolvency Adviser

Tel: 0800 063 9250

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