Loan dependency rising as homeowners shoulder more debt

24 April 2007
A rise in household borrowing could be contributing to a precarious national economy, a report from leading economists' thinktank the Ernst & Young ITEM Club has warned.

Families overspending their incomes have left the economy "skating – not to say wobbling – on thin ice", the report claimed.

"Many people are following the chancellor's lead and are borrowing to finance consumption," Peter Spencer, the ITEM Club's chief economic adviser, told Reuters.

Interest rates "must rise to curb the rise in borrowing", the report's authors emphasised.

While household incomes barely grew over 2006 and actually fell in the final quarter, many homeowners were also raiding savings accounts to fund high spending, the report claimed.

"There's a danger that we are slithering into complacency," warned Mr Spencer.

Britain's consumer debt is currently estimated to stand at £1.3 trillion.

Nevertheless, the picture was not all bleak, as the ITEM Club forecast that wages and salaries would grow by 5.5 per cent over 2007, boosting the spending power of those in secure employment with real earnings growth of around two per cent.

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