The Governor of the Bank of England, Mervyn King, has stressed the importance of consumers being careful not to borrow money that they cannot afford, and lenders being more careful about who they lend money to.
Mr King stated that consumer debt levels in the UK could lead to a major debt crisis. And with another interest rate rise due in July – which will be the fifth interest rate rise since last August – many more people in the UK could find themselves struggling with unmanageable debt.
Speaking at the Mansion House Banquet in London, Mr King addressed families and individuals, stating: ‘be cautious about how much you borrow’.
He also addressed lenders stating: ‘be cautious about how much you lend’.
At last month’s Monetary Policy Committee meeting Mr King actually voted for a quarter percent rise in interest rates, but the majority vote was to keep interest rates stable in June. However, this month’s meeting is likely to see a different result, and a further quarter percent rise is widely predicted.
At the dinner – also attended by new Prime Minister Gordon Brown – Mr King stated: ‘Be cautious about how much you borrow is not a bad maxim for each and every one of us here tonight.’
He also addressed lenders, adding: ‘Excessive leverage is the common theme of many financial crises of the past. Are we really so much cleverer than the financiers of the past?’
One LibDem spokesman said: ‘A combination of an economic slowdown and higher interest rates could spell disaster for large numbers of heavily-indebted families. If interest rates rise further, many home owners will simply not be able to pay.’
And the Shadow Chancellor added: ‘Millions of people are struggling as the cost of living is rising faster than their incomes.’
Tom Smith
9th July 2007
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