Ticking time bomb of household debt

MORE signs yesterday that Britain’s economy continues to surge forward, stubbornly defying the Jeremiahs who predicted that a vote for Brexit would push us into instant recession.

First quarter manufacturing export figures – helped by the weaker pound – were strong and jobs growth in the sector was at its fastest for 18 months, with both large and small firms hiring more workers.

So with the FTSE 100 share index still hovering close to a record high – a good indicator of investor confidence – and unemployment at an 11-year low, the economic outlook appears remarkably encouraging. Of course there will be storms ahead, but it seems we are in a healthy position to weather them.

Yet beneath the surface lurks an increasingly worrying threat to our financial stability – the terrifying level of household debt. Nearly £200billion is now owed on credit cards, loans and overdrafts – an increase of 11 per cent in just a year – and the average family debt stands at several thousand pounds, excluding mortgages.

In a sign that they have learned nothing from the 2008 crash, banks are lending with little or no investigation into borrowers’ ability to repay, with sadly predictable results. The Financial Conduct Authority (FCA) said yesterday there are 3.3million people in ‘persistent debt’, defined as those who are constantly paying interest without ever reducing the original sum borrowed.

For the banks, typically charging interest rates of up to 20 per cent, it’s a highly profitable business. For the borrower, it’s a spiral of debt and any rise in interest rates could see countless families tipped into bankruptcy. That really could start a recession. So the Mail welcomes measures proposed yesterday by the FCA to make banks lend more responsibly. We only hope it’s not too little, too late. Reckless lending was at the root of the last financial crisis. It would be a tragedy if history were allowed to repeat itself.