June 27, 2005

Bank of England warns on long-term debt

by brian_turner

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In its Financial Stability Review, the Bank of England warned that a downturn in the economy could cause problems with individual and company debt repayment.

Although short-term risks are low, the Bank warned about a possible long-term domino effect if banks called in loans because of concerns about the economy, thereby making it more difficult for borrowers to pay off other debts.

The Bank said that in June, household debts including mortgages totalled over Â£1 trillion.

The Bank expressed concern over longer-term vulnerabilities, due to some consumers and financial institutions continuing to increase their levels of indebtedness.

It suggests that if negative economic factors, such as greater unemployment, occur, there could be an increase in personal bankruptcy and company insolvency.

However, the Bank pointed out that near-term risks had remained low since the last review in December.

Although overall lending growth was slowing, the Bank said that this could be because some lenders were becoming more cautious and tightening standards for unsecured lending.

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Story link: Bank of England warns on long-term debt

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