Higher UK interest rates could spark a consumer debt crisis unless the government intervenes, according to Andrew Bailey, chief executive of the Financial Conduct Authority (FCA).
More than 8.3m adults in the UK are struggling under the burden of debt - a higher proportion of the population than in 2016, according to figures from the Money Advice Service.
Its data revealed 15.9 per cent of the UK population is living with a debt problem, up from 15.4 per cent in 2016.
In July Bank of England policymaker Alex Brazier warned rising levels of household debt could pose a danger to the economy, as lending conditions become too lax.
Now, in comments to a national newspaper FCA chief Andrew Bailey has said consumer debt levels are at the top of the watchdog's “to do” list for 2018.
"No one body might solve it on their own," he said, adding, "it needs government involvement".
The FCA confirmed to FTAdviser this is the regulator's stance.
Mr Bailey said the problem is particularly acute among workers in the so-called “gig” economy, where the quantity of hours they can work varies.
“There is a case for people [needing loans] having access to credit, particularly in a world where earnings are more erratic. Credit is a means of smoothing [erratic incomes] but the question is how do you structure it in a sustainable fashion," said Mr Bailey.
Mr Bailey’s comments come in the context of the Bank of England last week saying interest rates are likely to rise in the coming months.
The central bank cut interest rates in the immediate aftermath of the UK voting to leave the EU, so they now stand at 0.25 per cent, and also loosened credit conditions.
The strength of consumer spending has been emphasised this morning by the latest UK retail sales data.
The data showed sales rose by 1 per cent in August, far ahead of the 0.2 per cent rate forecast by analysts.
Ben Brettell, senior economist at Hargreaves Lansdown, said the increase in retail sales comes despite sluggish wage growth and rising inflation.
Restrictions on consumer credit may harm firms such as Provident Financial - the payday lender favoured by veteran fund manager Neil Woodford - banks and credit card companies, and companies that sell cars, such as FTSE 100 listed Pendragon.