Governor warns of interest rate rise

INTEREST rates may have to go up to cool rampant consumer spending, the Governor of the Bank of England has warned. Sir Edward George said the Bank may be forced to act if consumer demand did not 'moderate' of its own accord.

In recent months, High Street spending has rocketed despite the gloomy international economic outlook - and analysts have warned that the growth is unsustainable.

Latest figures show consumer borrowing from the big banks topped £1bn in November, an unprecedented figure for that month, as Britons bought more on credit and failed to pay it off. That amount is sure to be topped by December's figure as Christmas and New Year spending reached its peak.

Britain's huge consumer debt now threatens the country's economic stability. At the same time, personal loans from banks reached a six-month high in November, with £634m in new lending, taking the total outstanding to £48,277million.

The figures, from the British Bankers' Association, also show no let-up in mortgage lending, with banks handing out more than £4bn in new home loans, with an average figure of £79,200.

The Financial Services Authority has raised the spectre of a repeat of the early 1990s recession, which stemmed largely from families running up debts and being unable to cope with the repayments.

Sir Edward told the BBC: 'Consumer demand will have to moderate, I think there's a good possibility that it will begin to moderate of its own accord. When I say moderate I don't mean it falls off a cliff, but it slows down and that would be the most desirable outcome. But we may have to actually act if it doesn't happen of its own accord and that's when we would be putting up interest rates.'