Brits total £1m debt every four minutes as rate rise looms

Britain's personal debt mountain is increasing by £1m every four minutes according to fresh calculations released this week by the Bank of England (BoE).

Soaring levels of consumer borrowing, credit card and mortgage lending in April rose by £11bn to £984.8bn joined by record-high retail sales for the last two years.

The UK's appetite for spending and borrowing is now poised to break the £1 trillion debt barrier within days, probably on June 11 according to Liberal Democrat MPs, who scrutinized the figures.

They said that the sum in June will amount to approximately £17,000 for every man, woman and child living in the country.

Specifically concern from politicians and economists was expressed over the amount of people opting for mortgage loans from quick high-street deals at record levels since their start in 1993.

Freelance UK introduced the expected housing boom earlier in May this year, reporting house prices look set to rise at a "fairly firm pace" – as regions saw property prices climb 12 per cent from the start of 2004.

Philip Shaw, an economist at investment-manger, Investec, said: "The picture is that household borrowing is rising in the region of £11bn a month, an annual rate approaching 15 per cent. That clearly is too fast for the Bank of England."

Meanwhile, the Lib Dem Treasury spokesman, Vincent Cable, said the boom in lending from high street building societies and banks was "recklessly fuelling the housing boom."

He said: "If oil prices stay high, inflation and interest rates could rise, causing serious difficulties for many people. Large numbers of people are gambling on the house price boom - a gamble they may regret if house prices start to fall or interest rates continue to rise."

Yet, Vicky Redwood, analyst at Capital Economics, suggested a 20 per cent fall in house prices could potentially emerge if the BoE decide to hike rates.

She said: "With households so heavily indebted interest rates might not have to rise much further to trigger a household spending and borrowing slowdown. Households are spending the equivalent of 19 per cent of their income on servicing debt, once repayments of mortgage and unsecured debt are included."

Additionally, the BoE said consumer credit in April – checked through personal loans and credit cards, hit a new high of £18.1bn revealing a jump of £1.3bn on the month earlier.

John Butler, an economist at HSBC, told the Guardian Newspaper: "Consumers' overall appetite for credit continues to rise at a rapid pace. Although the data is only for April and hence does not capture the May rate hike, it shoes little evidence as yet that households have significantly adjusted their behaviour."

The release of the data from the BoE highlighting the borrowing boom in the first quarter of 2004 coupled with rising debt is widely expected to raise rates when the MPC meets on June 9.

 

4th June 2004

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