Consumer boom 'facing rates hit'

A LEADING think-tank has warned of the dangers of Britain's consumer boom, which it said could hamper growth when interest rates start to rise.

The Paris-based Organisation for Economic Cooperation and Development said household debt as a percentage of financial and housing wealth was close to levels reached in the late 1980s.

'Growth could be slower than projected if the increase in house prices and household debt were to prove unsustainable in the context of higher interest rates and consumer sentiment were to weaken correspondingly. Indeed, it cannot be ruled out that house price inflation will taper off soon,' the OECD said.

The organisation's latest forecasts see the economy expanding by 1.9% this year and 2.8% in 2003 - lower than the Treasury's forecasts and those of the European Commission published on Wedneday. It said it expected the Bank of England to lift the cost of borrowing 'from late spring 2002 onwards'.

Unemployment is expected to edge up from 5.1% in 2001 to 5.3% in 2002, before levelling off. Inflation is projected to stay close to the Government's 2.5% target.

The OECD added: 'It is important for structural policy to succeed in enhancing human capital and work incentives, raising competitive pressures and improving public infrastructure.'