Credit ratings agency Moody's has sounded the alarm over the rising level of UK consumer debt saying it leaves borrowers increasingly vulnerable to economic shocks.
The new report on the risk of rising consumer debt in the UK, found unsecured lending such as credit cards and personal loans jumped to nearly seven per cent year-on-year since December 2012. Moody's said this was particularly worrying against a backdrop of declining savings and wages.
"Consumer spending has surpassed pre-crisis levels, at a time when growth in unsecured consumer debt is outstripping wage growth," Greg O'Reilly, assistant vice president at Moody's, said in the report.
"Low interest rates are hiding the risk to consumers, making consumer debt appear more affordable on the surface, but masking potentially negative long-term consequences."
Read more: Central bankers scent interest rate hikes
Some Bank of England officials have hinted that they could be gearing up to raise interest rates from the low 0.5 per cent, a move which would ramp up borrowing costs for UK consumers.
Earlier this week Bank of England governor Mark Carney told the treasury select committee that the time for an interest rate hike was drawing closer, a view that was echoed by arch-dove David Miles. Carney also said that households should start to plan their finances with a future rate hike in mind.
Yesterday Fed chair Janet Yellen said US rates are still likely to rise this year and some analysts expecting the UK to follow suit in the following months.
Analysts at Unicredit and Danske Bank are betting a rate hike will come in November. Others are considering bringing forward their forecasts, which until recently pointed towards the second quarter of 2016.