It may be causing concern for the Financial Policy Committee, the Prudential Regulation Authority and even the Financial Conduct Authority but the rapid rise in unsecured borrowing does not seem a particular worry for Mark Carney.
The governor of the Bank of England was insistent that the fastest rise in consumer credit growth in a decade, which includes borrowing on credit cards, personal loans and car finance schemes, was not a major risk to the economy. He added that efforts to address the rise in unsecured lending were merely “good housekeeping as opposed to a core issue”. The Bank believed that consumption growth would rise in line with incomes over the next three years and would depend on what consumers are getting paid, “not what they can borrow”.
“This country has gone through a decade of very painful deleveraging and it’s only really in the last year that growth of debt has started to exceed income. Consumer credit is the minority in that, mortgages are still much more important,” he said. This is in contrast to what economists have been stating, arguing that the consumption-led growth in the economy has been fuelled by a rise in borrowing at a time when wage growth has been sluggish.
Official figures released in June revealed that households are saving less than at any time in the past 50 years to cope with the longest decline in their spending power since the 1970s.
The Office for National Statistics said the household savings ratio, which measures the amount households save as a share of disposable income, dropped to 1.7 per cent in the first quarter of the year. This is the lowest since records began in 1963 and down from the previous record low in the fourth quarter of 2016 of 3.3 per cent.
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Alex Brazier, the Bank’s director for financial stability, said last month that there was a spiral of complacency among lenders around debt.
However, Mr Carney said the sharp rise in unsecured debt “is not what’s driving the economy. It’s an issue for a sub-set of borrowers and for a sub-set of lenders.” He added: “The thing we have to worry about is that underwriters don’t shift to irresponsible standards.”