LONDON (Reuters) - British consumers are vulnerable to a hike in interest rates, ratings agency Moody’s said on Thursday, two weeks before the Bank of England is widely expected to hike borrowing costs for the first time in more than a decade.

People walk past the Bank of England in London, Britain, October 17, 2017. REUTERS/Hannah McKay

British household debt levels are high and still growing, Moody’s noted in a report on the outlook for securities tied to the consumer economy.

The ratings agency’s comments came a day after the Financial Conduct Authority regulator said over four million Britons were having difficulty paying their monthly bills -- especially younger consumers and renters.

“As real income declines, UK consumers are vulnerable to an economic downturn and any increases in inflation or interest rates could cause problems for household finances, especially for those on lower incomes,” said Annabel Schaafsma, managing director of structured finance for Europe, the Middle East and Africa at Moody’s.

The Bank looks on course to deliver its first increase in borrowing costs in a decade, according to most economists polled by Reuters, reversing last year’s rate cut that followed Britain’s vote to leave the European Union. [BOE/INT]

But a majority also said they thought now was not the right time to raise rates, citing an absence of evidence that growth in the economy or wages are about to pick up significantly ahead of Britain’s divorce from the EU.

Consumer credit -- which until recently was expanding at an annual rate of 10 percent -- is still outpacing household income by a wide margin.

The Organisation for Economic Co-operation and Development said on Tuesday this was a “major financial stability risk” -- a starker assessment than the BoE’s.

The British central bank has said there is no overall debt bubble in Britain but has expressed concern about areas of consumer debt, such as car loans.

Moody’s said it expected the performance of securitisation deals linked to the consumer economy to weaken.

It also said residential mortgage-backed securities (RMBS) based on the buy-to-let rental market were “very sensitive” to a weaker economy and that both occupancy rates and rent were expected to decline.

The outlook for the prime RMBS sector -- covering the top end of the residential market -- was better because borrowers were in good financial shape, Moody’s added.