YOUNG people are “borrowed up to the hilt” and are storing up economic problems which could precipitate the next financial crisis, economic experts have warned.

Professor David Bell, who advises Holyrood and Westminster on economic policy, said consumers are “pretty close to the limit as far as personal borrowing is concerned” following a decade of “lax monetary policy”.

Austerity and low interest rates designed to balance the books and stimulate the economy after the financial crisis in 2007 has dragged the economy down, suppressed wages, locked young people out of the housing market and forced them to turn to lenders to make ends meet, he warned.

Scottish peer John McFall, who chaired the Treasury Select Committee as the global financial crisis unfolded, said 2007 was the start of a “slow motion car crash for the banking system”.

Low interest rates, rising debt, the lowest investment in savings accounts in half a century, unprecedented house prices and a rise in rentals mean policymakers should be “very cautious” about the future, he said.

Former chancellor Alistair Darling also warned banks against complacency — insisting another financial crash can emerge from unexpected events.

Professor Bell said: “We’ve had a period of very lax monetary policy and it probably did aid the economy through the first few years, but what that has caused is also a big increase in asset prices, such as housing, and that is creating long term problems in the economy.

“For example, the younger generation find it very difficult now to access housing, and remember workers are no better off than they were 10 years ago which is almost unprecedented with a recession.”

He added: “Without some form of control on borrowing they have pretty much borrowed up to the hilt and we are now pretty close to the limit as far as personal borrowing is concerned, it seems.”

Professor Bell said some of the dire warnings about the impact of austerity “have been worse than the reality, but nevertheless it has probably dragged the economy down”.

John McFall said 2007 should be seen as the start of a “slow motion car crash for the banking system” as banks have failed to stimulate the economy.

“We’ve seen low interest rates for the longest period…so we really have to be very cautious about the future,” he said.

“When you look at the amount of debt that has been built up, that is a very serious issue.

“For example, households are saving the lowest proportion of their income since 1963.

“The buy-to-let mortgage market has grown by more than £100 billion since 2007, and house prices remain very high and have exceeded their peak in 2007.”

Lord Darling warned banks against complacency and a belief that a similar financial crash can not happen again.

“My guess is the next crisis will come from a different source because that tends to be what happens," he said.

“You’ve got threats that weren’t around to the same extent 10 years ago in relation to cyber attacks….now people are acutely aware that a problem can arise in a small bank somewhere on the other side of the world and within hours it can be affecting the entire banking system.”

He added: “People forget that you can get into trouble very quickly if you’re not careful, and you’re not watching and asking yourself at every turn: ‘If something goes wrong, what backup have I got?”