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MNI (London)
By David Robinson and Jamie Satchithanantham
     LONDON (MNI) - UK household debt levels, despite recent fairly rapid credit
growth, were not a bar to further monetary tightening, Bank of England Deputy
Governor Ben Broadbent said Wednesday.
     In an interview with BBC Radio 4's Money Box Broadbent said that household
debt levels were still well below pre-global financial crisis peaks. He was
guarded over when the next rate hike, following November's 25 basis point
increase, would come noting that the BOE's November Inflation Report suggested
that two or three more hikes were needed over the three-year forecast horizon.
     Unsecured credit growth has been punchy but mortgage growth has been
relatively soft and BOE analysis found that households should be able to
withstand rising interest rates.
     "If you look at the portion of household debt that is unsecured ... which
itself comprises car finances, credit cards, personal loans, overdrafts, quite
different things, but if you lump them altogether that has been growing quite
quickly over the last three or four years by 8% or 9% a year on average,"
Broadbent said.
     "However, that rise came after a steep fall in the aftermath of the
financial crisis. If you look at the total stock of that (unsecured) debt, which
is barely 10% of the total -- most household debt is secured -- it is not that
big," Broadbent added.
     That debt stock is now worth in aggregate about 15% of household income,
which Broadbent said was about the same proportion it was 20 years ago. It rose
to over 20% in the first half of last decade in the run-up to the 2008 crisis.
     In November, the Financial Conduct Authority reiterated that it did not see
the rapid growth of consumer credit as a material risk to economic growth via
its effect on household spending. The flow of new consumer borrowing was
equivalent to only 1.4% of consumer spending and had made almost no contribution
to the growth in aggregate consumer spending in the past year.
     As a share of income, consumer credit does not stand not elevated versus
historical standards and defaults on consumer credit have in fact fallen in
recent years, reflecting a potential improvement in credit quality.
     Asked if these consumer debt levels meant the MPC could not raise Bank Rate
further Broadbent said "No, I don't think that is the case."
     Broadbent noted that interest payments relative to income, rather than debt
levels, were at historic lows.
     "Interest rates would have to rise very materially even to get back to the
(historic) average" Broadbent said.
     For monetary policy current household debt levels and interest payments
were "not a first order issue," he added.
     Asked about the outlook for Bank Rate with inflation running above the 2%
target set for the committee Broadbent said "if you look at our latest forecast
what those suggest is that the best guess of the MPC is we will require a little
more (tightening) ... Over the three year period of the forecast I think we had
another two, or three (hikes)." 
     Those would lift Bank Rate from its current 0.5% level to 1.0% or 1.25%.
Money markets have been very largely pricing in a rate hike by November this
--MNI London Bureau; tel: +44 203-586-2223; email:
--MNI London Bureau; tel: +44 203-586-2225; email:
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MNI London Bureau | +44 203-865-3812 |