MNI: BOE Broadbent: H'hold Debt Levels Not Bar To Tightening

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

year. 

--MNI London Bureau; tel: +44 203-586-2223; email: david.robinson@marketnews.com

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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