Falling debt levels 'may put the brakes on economic recovery'

Falling debt levels may actually be slowing the economic recovery, according to Legal & General Investment Management (LGIM).

This is likely to lead to a subdued period of growth next year as households are unable to get credit and unemployment remains high, at a time when bank lending in the UK remains weak.

Economist James Carrick at LGIM said: "The factors which contributed to the secular rise in debt over the past decade are now reversing. Populations are ageing, interest rates can't go any lower and sub-prime lending is over."

Mr Carrick explained that as a result, higher levels of savings and lower spending will weigh on the pace of the recovery.

According to Credit Action, total UK personal debt at the end of August stood at £1,457 billion. The 12-month growth rate continued to fall, by 0.1 percentage points to 0.8 per cent.