Bank economist warns on debt

THE Bank of England's chief economist Charlie Bean has warned over high levels of debt in Britain and the vulnerability of consumers to a drop in house prices.

Bean, in Sydney to address a Reserve Bank of Australia conference on asset prices, said that while rising prices were inevitable as spare capacity in the housing market was taken up there is 'very considerable uncertainty about the underlying equilibrium value of house prices'.

Noting that about a third of British households had no liquid assets to speak of, Bean said: 'This suggests that the financial position of the household sector might be rather less resilient than is suggested merely by looking at aggregate balance sheet data.'

He added: 'The good news is that it is those households who hold the most debt who also tend to have higher income and more assets. But this is not very surprising as most of the debt is in the form of mortgages.

'On the other hand, households with no assets and who cannot borrow would be forced to cut back spending in line with their reduced income,' he said.

Some economists fear that debt levels may make it harder for homeowners to meet repayments in the future.

Bean's presentation in Sydney follows a warning last week from Bank of England Governor Mervyn King that the central bank is monitoring developments in debt. King also warned last week when the Bank published its quarterly Inflation Report that Britain's economy was likely to rebound more slowly than the Bank had previously expected.