Bank of England poised to act if household debt spirals

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Bank of England policymakers will act "sooner rather than later" to curb credit growth, if the recent rise in household debt starts to gather pace, a top official has said.

Sir Jon Cunliffe, the Bank's deputy governor for financial stability, said consumer debt remained "large by historic standards”, leaving the UK economy "vulnerable to shocks".

He said the Financial Policy Committee (FPC), which is in charge of maintaining financial stability, would consider taking action if credit started to grow faster than the economy.

"Given the vulnerability that already exists and the powerful drivers in the UK, particularly the housing market, if credit began again to grow faster than GDP, I would want to think about action to manage the financial stability risks sooner rather than later," he told an audience in London.

Sir Jon Cunliffe (left) and Mark Carney Photo: Telegraph

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Sir Jon also said Britain's buy-to-let market warranted closer monitoring because landlords were more sensitive to booms and busts in the housing market.

“I don’t know how that sector of the market, the buy-to-let sector, will react in terms of market stress,” he said. “That could make a crash in house prices, if you get into all these balance sheet problems with households.”

Sir Jon added that Britain's housing shortage had left the UK economy more vulnerable to build-ups of mortgage debt.

"Given the vulnerability that already exists … if credit began again to grow faster than GDP, I would want to think about action to manage the financial stability risks sooner rather than later."

Sir Jon Cunliffe