Lord Darling: UK economy risks as consumer debt grows
Former chancellor Lord Alistair Darling has warned over a growing concern of the rise in consumer debt in the UK economy. To the BBC Radio 4’s Today programme he said, “the lesson from 10 years ago (referring to the economy crash of 2007) is that something that can start as a small ripple in the water can become mountainous seas very quickly”.
He claimed Brexit was causing massive uncertainty which should “raise alarm bells” for an economy with rising levels of consumer debt that is so dependent on consumer spending. “When interest rates go up, and they will go up, if not this year then certainly next year, and suddenly people find they are going to be paying more in their monthly payments, that’s when you need to watch out”.
The 2007 financial crisis saw the fall of the French bank BNP Paribas when it shut down causing problems in the US securities market by shutting down various investment funds. The global financial markets seized up and banks stopped lending to each other.
Lord Darling told the BBC: “I had to go to one of these meetings of European finance ministers, and I was asked to come out and take a call from the then chairman of RBS, who said the bank was hemorrhaging money. Remember this was not only the biggest in the world, it was about the same size as the entire UK economy. I said to him: ‘How long can you last?’ And what he said to me shook me to the core. He said: ‘Well we’re going to run out of money in the early afternoon.’”
He said if the government hadn’t intervened quickly “there would have been blind panic throughout the entire banking system, not just in the UK but around the world”. He warned that the next crisis would come from “somewhere unexpected” but that banks were more “sharp and ready to intervene” than they were in 2007, but the events of that year and the consequent outcome should still be remembered so that the banks do not get complacent with lending.