Danger for debt trillionaires

THERE must be some very furrowed brows at the Bank of England. Three times since November it has sought to restrain borrowing and consumption by raising interest rates, but the credit binge goes ever onwards and upwards.

And this is not the only danger signal on the horizon.

The oil price has climbed sharply since the Bank last met raising the threat that higher energy costs will cascade through the economy increasing the risk of inflation. At the same time, retail sales are rising and manufacturing recovery has heightened fears of overheating.

In such circumstances the Monetary Policy Committee may feel it has very little choice but to raise interest rates again when it meets next week.

The latest figures from the Bank show that secured lending climbed by £9.8bn in April, the largest increase since it began keeping the records over a decade ago. There was an easing down in unsecured credit on overdrafts and credit cards which came in at £1.3bn against forecasts of £1.7bn.

But with overall debt levels climbing so fast, British consumers will soon have the dubious distinction of having as much debt on their household books as the total output of the national economy at £10,000bn or £1 trillion (£1,000bn). For those brought up on the notion that borrowing is bad for you, this is a forbidding thought.

It would be wrong to take it in isolation. Much of that borrowing is secured against housing so in fact, the asset side of the national equation far outstrips the debts.

Nevertheless, this will not stop much wailing and beating of hearts when debt, currently at £985bn, soars through the sound barrier.

What ought to be more worrying is the question mark over the ability of the public to service these stratospheric levels of borrowing.

We are often reassured that the high levels of debt do not matter because they only represent 7.1% of after-tax income, which is less than half the 1990 peak of 15%.

But Capital Economics points out that if capital repayments are factored in, the ratio to income rises to 12.7%. Add on top of this unsecured lending in the shape of overdrafts, and the number becomes a 'disturbing' 19%. This, it notes, is close to the 1990 peak of 19% when the housing market crashed and more than 1m people were left with negative equity.

Were interest rates to rise to 5.25% by year end, as the markets expect, then the income ratio would rise to a chunky 24.5%, well past previous peaks. The risks that an bloated housing market will hit the buffers look more likely with every passing day.

Phony war

THE phony war over the future of Marks & Spencer should end today when Philip Green unsheathes the bid he hastily had to own up to a week ago.

The leak has not been helpful to his cause. He lost the element of surprise, allowing M&S to construct a defence in the shape of Stuart Rose.

The rise in M&S shares on the market may also be costly. A week ago the take out price was seen at 375p, now 400p at least is thought necessary to tempt investors into selling.

A company as important to British retailing as M&S should not be driven into the hands of predators on the basis of the short term. What is important is the company's long term future.

Unfortunately, there has been precious little attention to this by the pre-Rose board.

The way in which it dumped executives, as if there were no tomorrow, each time it produced adverse sales figures does not feel like a long-term strategy.

Nor did the decision by Luc Vandevelde to sell off the overseas interests (at the time they were in profit) to buy the company some time.

It will be hard for Rose to portray himself as the heart and soul of the real M&S, because he is not.

He is just another corporate dealmaker (with an M&S background) thrown in to defend the status quo, as he tells us today 'with his life'.

With Green as his adversary, he will need all the body armour he can muster.

GSK threat

UNTIL now, GlaxoSmithKline has escaped relatively unscathed from the controversy over the alleged side effects on young people of its anti-depressant drug Seroxat, sold as Paxil in the US.

Now it faces a challenge on a more serious scale.

New York State attorney general Eliot Spitzer, the scourge of Wall Street, claims that secret studies were suppressed.

Britain's own Medicines and Healthcare Products Regulatory Agency (MHRA) conducted its own inquiries last year.