UK lenders are planning the biggest cutback to consumer loans since the start of the financial crisis, after a warning from the Bank of England that the pace of household lending is unsustainable.
The amount pledged to lenders over the next three months is significantly less than the amount loaned in the previous quarter. The drop is bigger than between any two quarters since the end of 2008, at the height of the financial crisis.
While the Bank has said there is no overall debt bubble in Britain, it has expressed concern about consumer debt, which continues to grow at about 10% a year.
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This prompted the Financial Conduct Authority, which regulates consumer credit, to look into whether changes are needed to help people struggling with debt, especially with car loans and mortgages.
Most experts expect the Bank to raise interest rates before the end of the year, although some are worried this could be premature. They fear that yesterday’s figures show Britain’s consumer economy is running out of steam just when uncertainty is growing over the impact of leaving the EU.
Joanna Davies, economist at Fathom Consulting told Reuters a consumer squeeze driven by falling wages in real terms combined with historically low household savings and tightening credit condition, “didn’t bode well” for the economy.
