FEARS over a “debt time bomb” created by runaway borrowing to pay for a consumer spending binge have been blown out of proportion, the Bank of England’s chief economist said yesterday.

Ahead of Bank figures today, set to confirm that household debt has topped £1,000 billion for the first time, Charlie Bean said that dangers from the debt build-up were greatly exaggerated.

Professor Bean also sought to soothe fears over a property crash. He said any overvaluation in house prices could be removed by a long period of little or no further rise in prices rather than a market slump.

As politicians and consumer groups seized on the rise in debt to issue warnings of dire consequences, Professor Bean insisted the risks were “less significant than has been suggested”. He said that the debt posed a smaller threat than thought because the bulk of the money borrowed had not been spent but invested in houses. “Since the higher debt has been broadly matched by higher financial assets, it is not obvious that it has any impact,” he told the Institute of Economic Affairs.

Professor Bean rejected calls for the Bank to take more aggressive action by ordering half-point rate rises to “bring consumers to their senses”. He said: “We are not in the business of trying to clobber the consumer.”

He noted that a side-effect of increased debt could be greater sensitivity to interest rates, and that uncertainty about the reaction of households and house prices “suggests a cautious approach”.

But with the Bank set to raise interest rates again next week, Professor Bean signalled a shift in the way it presents its views that should make borrowers more alive to the prospect of rate rises to come. The Bank is now to put greater emphasis on market expectations of future rate moves.

Professor Bean’s comments came as mortgage repossessions fell to the lowest level since 1982. But higher base rates are set to push repossessions higher, the Council of Mortgage Lenders said.