Consumer crisis looms as debts soar to £340 billion

The UK’s credit timebomb ticked louder on Monday as researchers warned that consumer borrowing could soar past £340 billion by the end of the decade.

The growing pile of credit card, car and personal loans, and student debt will hit the equivalent £12,500 per household by 2020, according to PwC’s Precious Plastic report. Younger borrowers are the most exposed.

Its warning comes as the Bank of England prepares to raise interest rates for the first time since the eve of the credit crunch in 2007, partly in response to “pockets of risk” in consumer credit.

Double-digit growth in loans means the UK’s unsecured debt mountain has already reached £300 billion — exceeding the pre-crisis peak by 30% — according to PwC. Last year, unsecured borrowing rose at the fastest rate since 2002, it added.

Simon Westcott, the accountant’s consumer credit leader, said: “Despite the uncertainty created by political upheaval, a number of macro- economic factors have combined to create a climate of rising consumer confidence and borrowing.

“Car finance especially has grown by at least 15% in each of the past five years, representing the largest increase among the main unsecured lending products. The true scale of the issue has now been put into sharp relief — but there is still more to come.”

Its report found the debt burden falling particularly on younger people. PwC says 25 to 34-year-olds are likely to hold more than five times as much unsecured debt than over-55s and, more worryingly still, are three times as likely to need to use credit to pay for essential items. “Generation Rent” is also twice as likely to use credit for day-to-day essentials than homeowners with mortgages, PwC added.

Chancellor Philip Hammond is said to be considering ways to ease the burden on younger people through the tax system as an ageing population puts more pressure on the public finances.

The findings came as Andrew Bailey, the chief executive of the Financial Conduct Authority also warned of the growing debt burden on 25 to 34-year-olds. He told the BBC: “There are particular concentrations [of debt] in society, and those are particularly exposed to some of the forms and practices of high-cost debt which we are currently looking at very closely. There has been a clear shift in the generational pattern of wealth and income, and that translates to a greater indebtedness at a younger age. That reflects lower levels of real income, lower levels of asset ownership. There are quite different generational experiences.”