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. Last Updated: 07/27/2016

Debt Woes Trouble U.K. Economy

LONDON -- Britain's financial watchdog said Wednesday that soaring consumer debts and weak stock markets might overshadow a modest economic recovery in 2003.

The Financial Services Authority forecast a modest recovery for an economy battered by tumbling stocks, weak corporate credit quality and the possibility of war in Iraq.

"But there are considerable uncertainties and plenty of reasons for caution at a time when more consumers look financially stretched," the FSA's managing director, Carol Sergeant, said in a statement accompanying its Financial Risk Outlook report.

"Borrowing by consumers has been growing at an unsustainable rate and some segments of the population are already having difficulty meeting their debt commitments."

Sergeant said that over the long term, British consumers need to save much more for their retirement.

Consumer borrowing is a particular worry in Britain because strong high street spending has supported an economy groaning under the weight of tumbling stocks and volatile global markets.

"There is a heightened risk for consumers taking on higher debt levels in a low inflation environment where the outlook for employment may also no longer be secure," Sergeant said. "There is a risk that when a correction comes, it could be rapid or disorderly, resulting in lower consumer spending and lower overall economic growth."

Weak stock markets have undermined the public's confidence in savings and investment products.