Rising levels of consumer debt in Britain have made some households more vulnerable to interest rate rises or a sudden drop in income, according to a study in the Bank of England's (BoE) Quarterly Bulletin published today.
The BoE has left interest rates steady at a 38-year low of 4 per cent for 13 months running, fuelling a borrowing and spending spree that has helped protect Britain from the worst of the global slowdown.
But policymakers are increasingly worried debt levels and house prices are now running out of control and this latest BoE paper may worsen concerns over a possible crash.
Using information from the latest British Household Panel Survey, the BoE research paper found the youngest and lowest-income households increased their debt to income ratios most between 1995 and 2000.
"These households are likely to be more vulnerable to financial and other shocks, such as unexpected increases in interest rates or spells unemployment," the article said.
The BoE paper said the record rises in debt levels since 2000 have reinforced the trends presented in the study. It also found the households with the highest levels of absolute debt tended to have the highest incomes and net wealth.
But they did not overall have substantially greater liquid assets than less indebted households, leaving them "potentially more exposed in the event of on adverse shock to income or an increase in interest rates".
The BoE said research carried out by it does not necessarily reflect the views of the bank or members of its Monetary Policy Committee.
PA