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Friday, 4 January, 2002, 06:29 GMT
UK consumers 'over-spending'
Oxford Street's tills were ringing this Christmas
British shoppers are spend, spend, spending
The governor of the Bank of England has warned that interest rates may have to rise this year to stem a credit card-fuelled spending boom in the UK.

We may have to actually act to cause (consumer spending) to moderate if it doesn't happen of its own accord

Sir Edward George, governor, Bank of England
Sir Edward George, speaking in an interview with BBC television's World Business Report, said spending levels in the medium term were unsustainable.

"Consumer demand will have to moderate," Sir Edward said.

"I think there's a good possibility that it will begin to moderate of its own accord, " he continued, adding that when "I say moderate, I don't mean it falls off a cliff, but it slows down".

Natural slowdown

The "most desirable outcome" would be for market forces alone to quell the trend to spend, Sir Edward said.

Sir Edward George
Sir Edward wants consumers to be more cautious

"But we may have to actually act to cause it to moderate if it doesn't happen of its own accord, and that's when we will be putting up interest rates," he said.

The comments represent a clear signal that the Bank of England is more concerned about the UK economy growing too fast than of following economies such as those of the US and Japan into recession.

They also followed the release on Thursday of reports showing strong High Street trade in the run-up to Christmas, and a renewed surge in house prices.

I don't know anyone who thinks it would be sensible or sustainable for the UK to join [the euro] at this kind of level

Sir Edward George

And Sir Edward's deputy, Mervyn King, warned the Financial Times of the dangers of a UK economy where the plight of retailers was so out of step with those of the country's recession-hit manufacturers.

However, in a separate interview with the BBC World Service radio's World Business Report he said there was a "small chance" that Britain could enter recession.

Euro considerations

He also told the programme that the task ahead for the government, in deciding whether Britain adopted the euro would be to determine whether the UK economy was moving in step with those in the eurozone.

While noting that it may be easier for business to operate with just one currency, he promoted an awareness that operating a single interest within several countries would present challenges unless they had achieved "sustainable [economic] convergence".

The euro's weakness was also a "significant obstacle" to UK adoption of the currency in the short term.

"I don't know anyone who thinks it would be sensible or sustainable for the UK to join at this kind of level," Sir Edward said.

The BBC's Reeta Chakrabarti
"This man is the senior official at the Treasury"
Governor of the Bank of England Sir Edward George
"The euro is undervalued"
See also:

03 Jan 02 | Business
'Bumpier ride' ahead for UK economy
21 Dec 01 | Business
Eddie George doubtful on euro
21 Dec 01 | Business
Sir Edward sparks unjust furore
19 Dec 01 | Business
BoE solidly behind unchanged rates
05 Dec 00 | Business
Knighthood for bank governor
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