Fitch warns of UK consumer debt bubble

Credit rating agency Fitch has warned of the UK’s ballooning consumer debt bubble after new data revealed that British households are borrowing more money than they are saving for the first time since the 1980s.

A report by the agency found that, for the past nine months, households have been in deficit – storing up problems for the UK economy.

The Daily Telegraph says consumer spending has helped to support the economy in recent years, “but it has also left UK families with more debt than the average household faced three decades ago” at the time of the so-called ‘Lawson boom’ in the mid-1980s.

Named after then chancellor Nigel Lawson, the boom in the mid-1980s ended because of a combination of sharply rising interest rates and the turmoil from Britain’s exit from the Exchange Rate Mechanism which led to Black Friday in 1987.

As it did then, consumer debt is now rising nearly 10% a year, even though average earnings remain stick at 3%.

Brian Coulton, Fitch’s chief economist said this leaves the UK consumer “in a vulnerable position if we get any negative shocks”, with the surge in borrowing meaning debt is rising back to pre-financial crisis levels.

Fears about rising consumer debt along with sluggish GDP growth of just 0.01% in the first quarter of the year, have dimmed forecasts of a interest rate rise by the Bank of England this month.