UK consumer debt still rising fast despite data revisions

Consumer debt continued to rise at a near double digit pace in August, adding to the Bank of England’s fears it is becoming “reckless”, but revisions to official figures on Friday showed households better able to cope than thought with higher borrowing.

The Office for National Statistics’ annual revisions to the national accounts corrected errors to household and corporate incomes, showing the level of household savings no longer falling to a 50-year low earlier this year.

The new revised data still show households have reduced the amount of their incomes they save significantly since last year’s vote to leave the EU, adding to worries that rapid consumer spending growth since the Brexit vote has been unsustainable. 

Mark Carney, Bank of England governor, said on Friday morning that the overall level of household debt was not a problem, but a “pocket of risk” in consumer borrowing on credit cards and car loans risked a “shift from what was responsible lending to reckless lending”.

Speaking on BBC radio, he confirmed that the BoE was likely to raise interest rates soon from 0.25 per cent to 0.5 per cent without quite confirming that the rate rise would come at the November meeting of the Monetary Policy Committee.

“If the economy continues on the track that it’s been on, and all indications are that it is, in the relatively near term we can expect that interest rates would increase somewhat,” the governor said.

BoE figures on Friday showed consumer credit growing at 9.8 per cent in August, a rate the central bank’s Financial Policy Committee thinks is unsustainable because lenders are being too optimistic about the level of risk they are adopting. On Monday the BoE said it was minded to force them to hold an additional £10bn of buffers to mitigate risks that the loans would eventually go sour. 

Releasing the revised national accounts, the ONS admitted that it had erred in calculating the household savings ratio in past releases. Rather than falling to a 50-year low of 1.7 per cent in the first quarter of the year as the statistical agency had reported in June, the ONS now says the correct figure was 3.8 per cent.

That was still a low level, but artificially low because households paid unusually high taxes in the first quarter, reflecting liabilities for dividends paid out a year earlier ahead of a change in the dividend tax regime. 

In the second quarter, the savings ratio stood at 5.4 per cent, a similar level to late 2016, although still a historically low level, with savings having fallen from 9.5 per cent as recently as the third quarter of 2015.

The revisions also showed a widening UK current account deficit and lower surplus in the corporate sector, since income had been transferred from companies to households in the process of revising the accounts.

Commenting on the figures and revisions published on Friday, Darren Morgan, head of gross domestic product at the ONS, said: “There was a notable slowdown in growth in the first half of 2017. The often buoyant services sector was the only area to grow in the second quarter, mainly due to increases in computer programming and retail”.

“Household spending growth continued to slow in the second quarter. However, revised figures show business investment grew more strongly than previously estimated,” he added.

The 0.3 per cent growth rate in the second quarter of the year was unrevised.

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