Bank of England governor Mark Carney issues warning over ‘frothy bank lending’

The governor of the Bank of England today warned that bank lending is getting “a little frothy” as he gave a fresh signal of an interest rate rise.

He told BBC Radio 4’s Today programme: “What we are worried about is a pocket of risk, a risk in consumer debt — credit card debt, debt for cars, personal loans. That has begun to grow fairly rapidly — about 10 per cent.

“They [the banks] have been taking too much credit for a relatively good economic environment and not been as disciplined as they should in their underwriting standards and their pricing on this debt.

“We are worried about the shift from what has been responsible lending to reckless lending.”

He said that while borrowing is understandable for “young couples and homeowners”, he added: “Some of it is getting a little frothy and should be addressed, and we have the tools to address it.”

His use of the word “frothy” will interest the City, as it is a phrase used internationally to describe market conditions preceding an economic bubble. 

Mr Carney said that while interest rates were set to rise if the economy continued on its present course, it would happen in a gradual way.

“What we have said is that if the economy continues on the track that it has been on — and all the indications are that it [will] — in the relatively near term you can expect that interest rates will increase,” he said.

“We are talking about just easing a bit off the accelerator to keep with the speed limit of the economy. So interest rate increases when they come, when and if they come, will be to a limited extent and in a gradual way.”

Carney sounds alarm on £30bn UK debt bubble

His concern about consumer debt comes as he fanned the flames of a much anticipated interest rates rise from its current 0.25 per cent level.

The next opportunity for the bank to raise rates is November, and Mr Carney said a rise could be “in the near term”. 

He also highlighted concerns at the Bank about the impact of Brexit on the City, and particularly the derivatives market.

He said the need to get the issue right in the final settlement underlined the importance of the two-year transitional period proposed by Prime Minister Theresa May.

“In the derivatives market there is a series of contracts. There are tens of thousands of contracts involving hundreds of institutions, European and UK, and the legal validity of those contracts post-Brexit is in question,” he said.

“It has to be solved ultimately by actions of the EU27 and the UK.”

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