According to new data from the Bank of England, consumer borrowing increased by its fastest rate for more than a decade in the run-up to the festive period, reaching levels not seen since the peak of the financial crisis. Consumer debt rose by 10.8 percent in total during the past 12 months – with credit card borrowing hitting a record high.
Meanwhile, households are saving the smallest share of their income since 2008.
Debt-based consumer spending continues to be the primary engine behind UK growth, but will prove unsustainable and leaves the economy more vulnerable to a downturn in the face of a shock or increasing uncertainty.
Too much household debt sewed the seeds for the last crisis and ensuing recession, but instead of trying to curb the level of borrowing and stimulate saving, the Bank of England’s policies encourage households to take on more debt and save less.
The Bank of England needs a more sustainable approach; one where it can stimulate spending without increasing the level of debt and one which doesn’t discourage saving and hurt pensioners.