Bank of England warns about UK’s consumer credit growth

Bank of England Headquarters (Photo by Diliff – Own work, CC BY-SA 3.0)

LONDON — The Bank of England is warning of “a pocket of risk” in the rapid growth of consumer credit in the British economy.

Though it says that it is “not a material risk to economic growth” as consumer credit only accounts for 11 per cent of household debt, the bank says the increase is a “risk to banks’ ability to withstand severe economic downturns” because consumer credit is the asset class that is “disproportionately more likely to default.”

The bank’s Financial Policy Committee said Monday that lenders have been “underestimating the losses they could incur in a downturn.”

The committee, which assesses financial risks to the British economy, also said that overall risks to the country’s financial stability from domestic sources “are broadly unchanged” and “at a standard level.”