Savings Slump, Credit Booms

News last week of a collapse in the UK savings ratio and a surge in consumer borrowing suggest that the consumer party may be getting out of hand.

Perhaps we shouldn't be too surprised. Following the financial crisis the Bank of England slashed interest rates and printed money to kick start the economy. Consumers have responded in text book fashion.

The latest credit numbers testify to the heady effects of cheap money and financial innovation on borrowing. A rising tide of on-line and contactless transactions and a new form of motor financing, Personal Contract Purchases (PCPs), offer new opportunities to borrow. In the motor industry PCPs have supplanted traditional credit arrangements and now account for over 80% of all new car purchases.