* UK consumer borrowing boosted by easier credit - BoE
* BoE flags interest-free credit cards, bigger personal
* Outlook darker for UK households as prices rise, wages
(Adds detail, analyst reaction)
LONDON, April 4 (Reuters) - A surge in consumer lending
means British banks are at risk of incurring losses, the Bank of
England said on Tuesday, warning that some might be letting
credit standards slide as they compete to offer debt to
Consumers ramped up their borrowing by more than 10 percent
late last year, the fastest growth in a decade, which helped
drive strong economic growth despite June's vote to leave the
European Union. Rates of saving fell to their lowest in more
than 50 years.
But the economic outlook is now darkening as households face
rising living costs in the wake of sterling's tumble against the
dollar and the euro, and wage growth is expected to remain below
its long-run average.
Last week the BoE said it was taking a closer look at
consumer borrowing, and on Tuesday it gave more details.
"An easing in credit supply conditions appeared to have
contributed to the growth in consumer credit, with intense
competition in some segments of the market," the BoE said in a
summary of the latest meeting of its Financial Policy Committee,
which looks at financial stability risks.
Credit card companies were offering longer interest-free
periods to entice borrowers, while other lenders were offering
larger unsecured loans and had cut the interest rates they
charged by more than for less risky mortgage rates.
The Financial Conduct Authority, a separate regulator,
proposed on Monday that credit card companies should freeze
lending to some of the 3.3 million Britons who paid more in
interest and charges than they have repaid debt.
The BoE is now also looking into the risks from Britain's
lending boom, and could take steps before the end of the year.
But BoE Governor Mark Carney said in January it would be a
"big call" for the central bank to rein in rapid growth in
Peter Richardson, a banking analyst at Berenberg, welcomed
the BoE's latest focus on consumer credit. Many lenders and
investors wrongly assumed that current low levels of loan
defaults would persist, even when the economy weakened.
"We think the growth and terms currently seen in consumer
credit markets show strong signs of cyclical risk illusion," he
said, adding he had recently cut his outlook on Lloyds Banking
Group, one of Britain's biggest lenders, to 'sell'.
Consumer borrowing accounts for less than 10 percent of
banks' stock of lending to British households and companies,
while mortgage lending makes up about 70 percent.
But the BoE said the relatively short-term nature of much
consumer lending meant the average credit quality of a loan book
could deteriorate much faster than was the case with mortgage
The BoE has said banks could face 18.5 billion pounds ($23
billion) of losses on consumer loans in the event of a sharp
economic downturn, compared with 11.8 billion pounds for
Some Britons are already running into difficulty.
StepChange, a debt charity, said last week that a record 600,000
people contacted it for help last year.
($1 = 0.8044 pounds)
(Additional reporting by Huw Jones; Editing by William
Schomberg and Catherine Evans)