Analysts at one of the world’s most influential credit rating agencies, Moody’s, has said that the UK’s debt levels are leaving the nation’s lowest earners dangerously open to economic downturn.
This rise in household debt and a weakening of the British economic climate has already forced the agency to downgrade four out of five consumer structured finance sectors to negative ratings in recent months.
The scale of household debt has risen drastically in recent years, supported by historically low interest rates, which has seen the amount borrowed on credit cards, overdrafts and loans rocket to £200 billion, according to the Bank of England.
Moody’s analyst, Greg Davies, said: “Household debt is high and still growing, leaving consumers vulnerable to an economic downturn, while higher inflation, weaker wage growth and levels of indebtedness leaves those in lower-income brackets the most exposed.
“An additional challenge is that households’ capacity to draw on savings to maintain consumption and/or service their consumer debts has significantly diminished.”
In response to the rising levels of debt Alex Brazier, the Bank of England’s executive director of financial stability has suggest that the Bank may ask lenders to raise their capital buffers come September, if household debt continues to grow.
This is an attempt by the Bank to cover consumers’ debts, which have been rising by more than 10 per cent a year, to prevent another economic downturn similar to the recession in 2008.
The Bank’s Governor, Mark Carney, recently said that lenders were “forgetting the lessons of the past.”