"Spend, spend, spend, urge the banks. "Spend, spend, spend urge the credit card companies. "Spend, spend, spend" urge the building societies. And that is exactly what the British public is doing, spending like never before - on credit.

"It will all end in tears" the gloom-mongers warn. But as yet nobody is taking much notice.Instead, consumer spending remains at record levels, fueled by higher real earnings and ease of borrowing. British household debt has soared.

According to the Bank of England, the personal sector increased net borrowings by an annualized rate of 23.5 billion ($33 billion) during the first quarter of the year. Of this, 18.3 billion was related to house purchases, and 3.1 billion was borrowed for consumption. Total consumer credit advanced to the personal sector grew from 22 billion at the end of 1984 to more than 26.5 billion by March 1986. In addition, there probably has been some leakage of funds from the housing market into consumer spending, the Bank of England reckons, as householders increased the size of their mortgages to take advantage of rising property values.

The pace of new borrowings reflects intense competition in the retail banking sector which, like Britain's securities markets, is going through its own Big Bang. Foreign financial institutions are breaking into a market that until recently was dominated by just a handful of British banks.

Building societies (like savings and loans associations), which used to provide only home loans are moving into the consumer finance sector. Credit card firms are starting to offer gifts to high-spending customers in an effort to encourage them to make even greater use of credit facilities. A growing number of retailers are offering their own credit cards. Never has it been so easy to borrow.

However, the strong growth in borrowing, especially for mortgages, has resulted in a steady rise in the ratio of the household sector's stock of gross liabilities to income since the early 1980s. The Bank of England calculates that by the first quarter of 1986 this ratio was approaching 70 percent, from less than 40 percent in 1980, while the ratio of gross interest payments to household incomes is around record levels.

The effect on the British economy of the credit-led consumer spending boom is somewhat ambiguous. On the one hand, strong domestic demand has contributed significantly to economic growth this year and is expected to remain a major factor well into 1987. Consumer spending has been the main source of growth so far in 1986, according to the Bank of England.

However, record retail sales have also sucked in an unprecedented volume of imports. For the first time since 1979, before North Sea oil became an important export item, Britain's international trade balance looks likely to slip into the red this year. The United Kingdom suffered its worst ever monthly merchandise trade deficit of 1.5 billion in August as imports soared to a record level. Claims that this was a one-month aberration proved unfounded when the September figures, published last week, showed an equally high import total of almost 7 billion. The non-oil trade deficit reached 1.7 billion in August and was only marginally better last month at 1.1 billion.

Figures published by the Central Statistical Office show that consumers spent a record amount during the third quarter of the year on virtually all categories of goods. Although consumer expenditure has been rising steadily since 1982, it appears to have accelerated during the last six months. The amount spent during the July-September period was 5.2 percent higher than in the third quarter of 1985. The nationwide spending spree isn't just a reflection of easy credit. With inflation down at 3 percent and average earnings growing at an annual rate of around 7.5 percent, real personal disposable incomes have increased considerably. Nevertheless, borrowings are also helping to pay for goods on an unprecedented scale.

The present situation dates back to 1980 when the government lifted the so-called corset on the growth in bank lending, and then two years later ended all hire purchase restrictions.The liberalization of financial services has intensified competition for retail customers who are being wooed with all sorts tempting goodies.

But alarm bells are beginning to ring. So keen are the financial institutions for new business that they are starting to encourage people to borrow far more than is sensible and are being accused of paying insufficient attention to borrowers' ability to repay. This is particularly so in the home loans market where lenders happily advance large mortgages secure in the knowledge that property prices, at least in south-east England, have risen so steeply in recent years that their money is safe even if the mortgagee falls behind in repayments.

But evidence of rash lending decisions is emerging. The number of house repossessions by building societies increased from 2,500 in 1979 to 16,800 last year and is likely to be even higher in 1986.

The governor of the Bank of England has stepped into the debate, warning banks and building societies of the dangers of over-lending in the housing market.

"While house prices remain buoyant in the U.K., lending policies should not be based on the premise that house price rises will continue apace," he said in a recent speech.

"Increases in house prices and nominal earnings do, of course, ease bad debt problems, but lenders and borrowers must not allow themselves to be lulled into the belief that their problems will all come out in the inflationary wash," he added.

Although Mr. Leigh-Pemberton conceded that growth in lending to the personal sector had been matched to some degree by increased holdings of

financial assets, he still stressed the need for caution and self-restraint.

Nevertheless, there is little doubt that there will be many more casualties over the coming months as customers who have been persuaded to take on larger mortgages, make greater use of their credit cards, increase their bank overdrafts and open up new charge accounts come unstuck.

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