By Tom Clarkson
Research Team Leader
“We will not return to the old boom and bust” claimed Gordon Brown with perhaps a touch of hubris in his last budget as Chancellor in 2007. There’s been plenty of bust, if not a lot of boom, in the years since Mr Brown’s famous pronouncement – Britain has endured its deepest recession since the Great Depression in the meantime. But when will we reach the boom times again?
The return of public confidence
With figures released this week by the Bank of England showing that monthly mortgage lending is at its highest level since April 2008, public confidence also appears to be on the up.

The proportion of people who expect their personal financial situation to worsen in the next six months is at its lowest level since ComRes began work on R3's Personal Debt Snapshot in 2010 (see chart).
Debt worries are also at their lowest level for three years. Judged on public sentiment alone, the economic situation appears to be improving.
Challenges ahead
However, it’s not yet time to crack open the champagne. Our research highlights three further reasons to be cautious about the economic recovery.
1.   The absence of savings
Staggeringly, one in five British adults say that they do not have any savings at all at the moment. This figure – which is highest among the least affluent and has stayed relatively constant over the past year, despite the apparent upturn in economic fortunes – suggests that a large section of British society could struggle to cope with any adverse changes in the financial weather. This is particularly concerning ahead of a potential interest rate rise.
2.   Bad debt?
Despite a decline in recent years, two fifths of the British public still say that they are concerned about their current level of debt – hardly a “good” state of affairs.
But the type of debt that people worry about is likely to trouble central bankers most. Credit card debt consistently emerges as the primary driver of concern about personal debt, suggesting that we have not learned the lessons from the financial crash and the role of consumer credit.
3. The challenge of interest rates
Both of the above trends – the lack of flex in personal finances and concern about high levels of potentially unsecured debt – accentuates the concern raised by the ticking time-bomb, the potential for a rise in interest rates. Mark Carney has previously said that the decision to raise interest rates will come into “sharper relief” around the turn of the year and he warned again this week that households should prepare for a rate rise even if it remains “a possibility not a certainty”.

Worryingly, our research consistently shows that households are not following Mr Carney’s instructions to prepare for a rate rise – we repeatedly find a nation unlikely to factor a rate rise into their financial planning and unclear about the potential impact of a rate rise on them.
This is clearly a challenge for those across the financial services sector – from banks to advice providers - and one that those on the Monetary Policy Committee will be considering as they ponder the timing of a rate rise.
So, are the boom times coming back? Don't order the caviar just yet.

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