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Debt warning on recovery

THE economic recovery will falter if the government fails to deal with the rising level of household debt, a leading think-tank has warned.

Tony Dolphin, chief economist at the centre-left think-tank the Institute for Public Policy Research, said there was a risk better economic news could lead to complacency.

He warned 2014 would mark the start of the next debt bubble and criticised ministers for not doing enough to boost industry and instead opting for policies - such as Help to Buy, aimed at first-time buyers wanting to secure a home with as little as a 5% deposit - that only lead to greater debt.

With the next UK debt bubble expected to reach 160% of household income by 2018, the recovery could prove "unsustainable and bittersweet" for millions of voters, Mr Dolphin said.

Recent good news on the economy, including unemployment falling to 7.4%, its lowest level since early 2009, could be undermined if the government does not do more to help boost industry, the economist added. He also warned that despite external factors such as the eurozone crisis, the country was still living beyond its means.

Mr Dolphin said: "There is a danger that a stronger economic recovery and good news on the jobs front will lead to complacency. We should be alarmed that growth is being driven by the same mix of factors that contributed to the depth of the last recession.

"The Government has introduced Help to Buy which generates more debt, rather than focusing its efforts on boosting investment spending in the manufacturing sector.

"The Government has in a sense run out of ideas for the economy and gone for the easy option of boosting the housing market."

He added: "Strong growth in the short-term does not mean that structural weaknesses in the UK economy that became more evident during the 'Great Recession' have been eliminated."

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