UK banks warned about their consumer loan losses

The Bank of England said rapid gains in consumer credit could cause UK banks to suffer bigger losses than they are expecting if the economy weakens.

“Lenders overall are placing too much weight on the recent performance of consumer lending in benign conditions as an indicator of underlying credit quality,” said the Bank of England’s financial policy committee. “As a result, they have been underestimating the losses they could incur in a downturn.”

In the event of a recession, losses from defaults in consumer loans would reach £30bn (€34bn) within three years, the Bank of England’s stress tests showed. It will release complete results of that analysis on November 28.