British Consumer Debt spirals out of control





British consumer debt has become a serious issue that threatens future economic security in the UK.

We have heard plenty from the Bank of England’s monetary policy committee of late, with its members divided over how to set interest rates in a post-referendum Britain. The debate centres on when to raise borrowing costs from their record low and whether the economy – and squeezed consumers – can take it.

Last month saw the BoE’s twice-yearly financial stability report presented by Governor Mark Carney, using the country’s economic health check to highlight the problem of consumer debt burdens in the UK. With real incomes squeezed, households have been dipping into savings and maxing out their credit cards.

The Bank has raised its concerns about what this means for the broader financial system before, and could well use this update to flag the risks to the system if individuals overstretch themselves. Investors will be watching for any hints from the Bank on what it plans to do about rising consumer borrowing.

Carney is also likely to use the report to give himself and committee colleagues a pat on the back for the steps already taken by the FPC to rein in the mortgage market, which in turn give monetary policymakers scope to raise interest rates without inflicting too much harm on borrowers.

British consumer borrowing at highest levels since 2008

Four in ten Brits say they’re worried about their debts, with a third saying they’re juggling three or more credit cards. Bank of England figures show total unsecured debt on credit cards, car loans and overdrafts is now £198 billion – the highest level since the 2008 financial crisis.

A survey from financial services analysts Consumer Intelligence shows just what this means for families. Nearly one in six adults rely on credit cards to get through the month, it found, and one in ten are maxed out on at least one card. One in five owes more than £10,000 on top of any mortgage.

“The alarm bells have been ringing all year with the Bank of England warning that personal debt levels have been rising at the fastest rate since 2005,” says Ian Hughes, chief executive of Consumer Intelligence.

“It is a major concern when millions of people admit to being worried about how much they owe and so many are relying on credit cards to tide them over each month.”

Debt problems affect higher earners just as much, the study found – around a quarter of adults with a household income of more than £50,000 don’t usually clear their credit cards.

Around the UK, the most stressed areas are Northern Ireland and the North East, where most people are worried about their debts. The least worried areas are the East and the South West.

“Borrowing makes sense for many when interest rates are low but it is essential people have a plan to repay their debts, not least to reduce the stress millions are facing,” says Hughes.