Woodford: UK consumer debt concerns overblown

Woodford has dismissed concerns of rising UK consumer debt arguing house prices are rising and the low interest rate environment will be supportive.

UK households have amassed £200bn in unsecured debt and consumer credit is rising at a rate of just under 10 per cent a year, while inflation has seen real wages fall 0.4 per cent.

FCA chief executive Andrew Bailey has urged the Government to take action on consumer credit following meetings with debt charities across the UK as personal loans soar while wages fall.

But Woodford head of investment communications Mitchell Fraser-Jones says consumer debt levels are manageable in the context of household incomes.

He says the UK’s falling savings ratio comes as most households’ primary asset – their home – has been rising.

Figures released last month suggest that UK household savings have been running at up to 10 per cent in recent years, compared to previous estimates which fell to around 5 per cent last year. But Fraser-Jones argues they are not as bad as previously thought due to a change in how the ONS calculates the figure.

Furthermore, Fraser-Jones says despite more hawkish rhetoric from the Bank of England in the face of rising inflation, an interest rate in the near future would not herald the start of meaningfully tighter monetary policy.

“Official data confirms that the UK economy has remained resilient in 2017, despite predictions that the Brexit negotiations would precipitate a collapse in activity,” says Fraser-Jones. “That never seemed likely to us, and the data, thus far, is supportive of our view.”

Fraser-Jones points to better-than-expected retail sales numbers and renewed growth in money supply.

“We remain positive on the outlook for the UK economy – much more positive than the gloomy prognosis implied by market valuations,” Fraser-Jones adds.