UK lenders plan biggest consumer lending curb since late 2008 -BoE

By Andy Bruce and Huw Jones

LONDON (Reuters) - British lenders are planning the biggest cutback in consumer loans in nearly 10 years, the Bank of England said on Thursday, after it warned repeatedly about the strong pace of lending to households.

The BoE's quarterly net balance of lenders' expectations for the availability of unsecured lending over the next three months fell to -28.6 from -16.2.

That signalled the steepest contraction since the fourth quarter of 2008, when the economy was in the depths of its worst post-war recession.

The BoE has said there is no overall debt bubble in Britain but it has expressed concern about consumer debt, which had been growing at about 10 percent a year.

The BoE has signalled it is likely to raise interest rates for the first time in more than a decade soon, so long as the economy and inflation continue to grow.

Most economists polled by Reuters think it will hike rates in November, although a majority reckon it would also be a mistake given the uncertain outlook ahead of Britain's divorce from the European Union.

Thursday's survey figures showed Britain's consumer economy is running out of steam, said Joanna Davies, economist at Fathom Consulting, the only forecaster in recent Reuters polls to predict a recession. [ECILT/GB]

"We're quite concerned about the consumer squeeze," Davies said, citing falling wages in inflation adjusted terms and historically low household savings.

"If you add tightening credit conditions onto that, it doesn't bode well."

Lenders expected the availability of mortgages and loans to businesses to remain broadly steady over the next three months.

But they also expected demand for loans for capital investment in businesses to fall at the fastest rate since the third quarter of 2011.

The BoE has raised concerns about heady growth rates in consumer credit, and the Financial Conduct Authority, which regulates consumer credit firms, is looking at whether changes are needed as thousands of people struggle with debt.

Earlier this year the BoE warned lenders may be dicing with a "spiral of complacency", with car loans a particular area of worry.

The FCA faces some political pressure to cap high interest rates, but David Geale, director of policy at the watchdog, said on Thursday there is no single fix.

"I don't think there is a one-size-fits-all solution," Geale told the Westminster Business Forum.

Consumer credit, including unarranged overdrafts, were a lifeline for some people, he said.

"Price caps are something that shouldn't be used in haste ... There is a combination of factors that we need to consider, and not just a price cap," Geale said.

Rising costs for households in an era of weak wage growth -- whether from loans, housing or energy -- have shot to the top of Britain's political agenda over the past few years.

Earlier on Thursday, Britain published a draft law that would cap consumer gas and electricity prices for millions of households, taking action to try and fix a market it says punishes loyal customers.

(Editing by Catherine Evans)