Further to Jim D's observations:
Personal debt hits record high
Low interest rates see borrowing soar to �700bn
Heather Stewart and Charlotte Denny
Friday August 31, 2001
The Guardian
British households have ignored rising concerns about the health of the
economy and taken advantage of low interest rates to
stack up a record �700bn in debt, it emerged yesterday.
Despite the deteriorating international outlook and a warning earlier
this month from the Bank of England that borrowers could find
themselves in trouble if the economy slows sharply, the average British
household owes more than �5,300, on top of their
mortgage.
City analysts said consumers appeared oblivious to the global downturn.
"If the economy is slowing it seems that no one
bothered to tell the consumer," said Jeremy Hawkins, chief UK economist
at Bank of America.
With borrowing rates at their lowest since the early 1960s, households
are taking a relaxed view about their debt burden.
The Bank of England said total lending rose by �6.14bn in July, the
highest figure since records began in 1993. Credit cards and
personal loans rose by �1.7bn over the month, to a level 12% higher than
a year earlier. Home loans rose by �4.45bn, also a
record.
Last month's borrowing spree came as fears rose of more job losses in
the financial services sector and in manufacturing.
However, despite the number of firms announcing large-scale layoffs,
unemployment is still falling. Official figures showed that the
jobless total dropped by 12,500 in July.
"There's doom and gloom out there in terms of particular sectors and
there's doom and gloom in newspaper reports, but
consumers are being completely unaffected by the global slowdown," said
John Butler, UK economist at HSBC. "It needs interest
rates to jack up or unemployment to rise - if neither happens, then the
borrowing will carry on."
The persistence of the feelgood factor despite the global slowdown was
underlined by the consumer confidence figures which
showed that households are more positive about their personal finances
than at any time since the survey began in 1982.
"Interest rates are almost down to their lowest levels since the 1960s,
unemployment is at a 30-year low, and house prices are
taking off so there is no reason why consumers shouldn't be confident,"
said Mr Butler.
Rising property prices are bolstering household optimism. House price
inflation is back in double digits, and although mortgage
lenders believe that it has peaked, the Bank of England data suggest the
boom could continue for some time yet.
A record �14.9bn worth of mortgages were approved last month while the
number of new mortgages reached 110,000 - the
highest since the housing bubble of the late 1980s. The three month lag
be tween mortgages being approved and hitting the
housing market suggests the current boom may persist into the autumn,
promising further price rises for home buyers.
"The numbers are consistent on the face of it with house price inflation
rising to 15% or so," said Jonathan Loynes, of Capital
Economics.
Yesterday's figures will set alarm bells ringing at the Bank, whose
nine-strong monetary policy committee meets next week. The
MPC is counting on consumer spending to slow down in the second half of
the year, to make room for the government's boost to
public spending.
With Britain's manufacturing sector formally in recession and exporters
still handicapped by the persistent strength of the pound,
large sections of industry have made repeated calls for a further cut in
interest rates to stave off further job cuts.
But the worry amongst policy makers now is that any move which made
borrowing even cheaper would inevitably risk reigniting
inflation.
"None of this will sit well at next week's Bank of England meeting, and
these data must significantly dent hopes of rates coming
down then," said Jeremy Hawkins, chief UK economist at Bank of America.
But while upbeat about their own prospects, consumers are less sanguine
about the wider outlook, with confidence in the
economy at its lowest level for almost three years.
An increasing number are also expecting unemployment to rise in the
coming months - a key determinant of whether the level of
borrowing now being run up will become unsustainable in the future.
Household debt, including mortgages, has risen to around 110% of
disposable income as a result of the borrowing splurge, up
from 94% at the beginning of 1998, although low interest rates have been
holding repayments down.
"Servicing costs are, of course, considerably lower than at the end of
the 1980s (after the last borrowing feast)," said Simon
Rubinsohn, of City brokers Gerrard.
"But this will provide little comfort for households if unemployment
does turn upwards towards the year end," he added.
Full article at:
http://www.guardian.co.uk/uk_news/story/0,3604,544788,00.html
Michael Keaney
Mercuria Business School
Martinlaaksontie 36
01620 Vantaa
Finland
[EMAIL PROTECTED]
