HIGH levels of consumer and corporate debt should not stop the Bank of England raising interest rates, a top official said yesterday, arguing that exposure to other countries, rather than high levels of domestic debt, caused the banking crisis.
The monetary policy committee’s (MPC) Ben Broadbent played down the current period of deleveraging, arguing that he is “not convinced that, as a general matter, non-financial domestic leverage was the key reason for the UK’s financial crisis or, therefore, that it needs to return to some historical ‘norm’ to declare the crisis at a definitive end.”
Rather, “the extent and riskiness of banks’ overseas balance sheets” was the main problem and is still where “the larger risks reside,” he said.
Broadbent stressed he did not expect interest rates to rise any time soon, just that the Bank should not be overly concerned about indebted consumers if it needs to raise rates.
Borrowing was largely to accumulate financial assets, not to finance “profligate” spending, he said, leaving net financial wealth in 2008 no lower than it was in 1992, relative to incomes.