An unhealthy interest?


Standing at nearly £1.9 trillion, UK household debt remains a big issue. It is one that has very real and very obvious relevance for those families having to meet repayment commitments. But it is one that has macroeconomic implications too: the debt hangover that has endured over the past decade has undoubtedly hampered the UK’s recovery from the financial crisis. It is unsurprising therefore that the recent surge in consumer credit growth has provoked some concerns that households are once again storing up problems for the future especially with interest rate rises expected over the coming years. The good news is that much of the credit surge appears to have been associated with borrowing by higher income households, who we would expect to be relatively well placed to deal with future shifts in circumstance. And many of the credit market fundamentals look much improved relative to the pre-crisis period, with tighter lending criteria and closer monitoring of potentially unwelcome developments. But while the flow of credit may be much improved, the stock remains substantial. Increases in the base rate will inevitably increase costs for many indebted households and have the potential to further increase the debt distress faced by some.

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