Households have been urged by the Bank of England's governor to think carefully about debt levels amid concerns about the current spending boom.

Mervyn King's comments came as the Bank conceded in its quarterly inflation report that neither consumer spending nor the housing market have slowed by as much as it expected.

Mr King, whose monetary policy committee raised interest rates for the first time in almost four years last week, said: "There is a risk that heavily indebted households will be badly affected by changes in economic circumstances or interest rates.

"Everyone needs to think carefully about the amount of debt which they can afford."

The Bank's inflation report also pointed out that the outlook for the UK economy appeared now somewhat stronger than in August.

In its report, the Bank said its forecast for the next two years was for UK GDP to grow "a little faster than trend".

It added: "The broad picture is one of steady growth in consumer spending, confined with strong growth in public expenditure and a modest expansion in business investment."

In terms of inflation, the Bank said its projection was for the figure remain to close to the Government's 2.5 per cent target over a two-year forecast period.

The City expects more interest rate rises next year and Investec economist David Page added: "The figures offer a fairly clear indication that the Bank is not through yet raising rates.

"However, Mervyn King also struck a cautious note, suggesting a steady approach."

Meanwhile, Britons are planning to spend £868 on Christmas this year, just £6 more than they spent in 2002, research has claimed.

Spending on food, drink and decorations looks set to increase compared with last year but at the same time they plan to spend less on presents, according to debit card Switch.

Consumers think they will spend an average of £345.65 on gifts this year, although 35 per cent of people thought they would blow at least £500 on presents.

Two-thirds expect to pay for the cost of Christmas using savings and nine per cent say they will use a credit card or loan.

Thursday November 13, 2003