Leading credit agency Fitch reported a boom in consumer credit saying UK households are now borrowing more than they save. This is the first time we have seen this since the 1980s. Fitch say, this last happened 30 years ago during the ‘Lawson Boom’. Nigel Lawson was the then chancellor of the exchequer. This swing, according to Fitch has happened over the last year. They say lower private pensions savings, relative to income and greater residential investment are the two main reasons for this.
A boom in consumer credit has fuelled growth in the debt of UK households
The ratings agency said that UK households’ swing into an aggregate net financial deficit position over the last year is almost unprecedented.
Brian Coulton, Fitch’s chief economist said, “More recently, the UK household debt to income ratio has risen, retracing more than a third of its post-global financial crisis decline, in contrast with the US, and is likely to keep rising given the sector’s financial deficit.”
It added that the UK household sector’s worsening financial health reduces consumer resilience to income or interest rate shocks, while also presenting risks for UK consumer loan portfolios.
However, with interest rates staying lower, consumers are not paying as much to service their debts.
The group said: “A major interest rate shock appears unlikely (we forecast the UK base rate to rise gradually, to 1.25% by end-2019), but a more immediate shock could come from tightening credit supply. The impact of the Brexit referendum on real wages may be fading, but Brexit uncertainty creates risks of a bigger shock to growth and employment.”
The Bank of England were predicted to make another rise in interest rates this week but recent weak GDP growth amid a slowdown in the services sector has meant the Bank have left well alone.