One in four households are struggling with debt, according to the Financial Services Authority.

Carol Sergeant, a senior official at the watchdog, said: "Borrowing has been running at an unsustainable rate and some people are having trouble paying their debts.

"There is a risk that, when the correction comes, it could be rapid and disorderly. The results could be lower overall economic growth, hardship for consumers and increased credit risk for lenders."

Forum Response: Association for Payment Clearing Services

A spokesman for APACS told ePolitix.com: "Debt has grown at a rapid rate in the last decade, against an underlying economic environment of falling unemployment, rising wages, rising house prices and low interest rates. In effect, consumers have reacted to the economic climate and behaved responsibly.

"Historically low interest rates mean that, even though debt-income ratios are above 100 per cent, the cost of servicing that debt relative to disposable income is much lower than in the late 1980s.

"The most likely scenario for 2003 is a cooling housing market, a slight increase in unemployment and a slowdown in wage increases.

"Given these forecasts, the rate of recent increases in borrowing would prove unsustainable, but we would expect consumers to react accordingly to this changing economic climate and so moderate their borrowing gradually. Any subsequent decline in spending should be compensated for by planned increases in government expenditure."As such, at the macro level, the economy faces a soft landing rather than a 'rapid and disorderly correction'. Sir Edward George's comment that consumer spending is unlikely to 'fall over the edge of a cliff' rings true. Demand would only face a sudden correction if interest rates or unemployment shot up unexpectedly - neither of which is likely - or if consumer confidence disappeared.

"To this extent, media speculation about future problems could become a self-fulfilling prophecy. If consumers believe the economy is about to crash land they will stop spending immediately and the economy will crash land.

"Clearly, even in the 'soft landing' scenario there will be individuals who face difficulties with debt and the lending industry takes this very seriously.

"To the extent that individual cases of over indebtedness are inevitable in a credit society, the FSA report offers timely and common sense guidelines and as an industry we are keen to work with authorities to foster sensible borrowing and lending decisions.

"Creditors' lending decisions are based on more sophisticated techniques than ever before and, contrary to popular perception, a majority of credit applications are turned down."

Forum Response: Association of Chartered Certified Accountants

A spokesman for ACCA, told ePolitix.com: "ACCA has been warning for some time of the danger that consumers are taking on too much debt. A surprise change in circumstances could leave many people in financial difficulty.

"Borrowers need to be prepared for possible higher interest rates, which could affect their ability to meet long-term loan repayments. Thousands of homeowners have taken advantage of the historically low rates to re-mortgage their properties in order to finance home improvements or pay for holidays. People need to be aware that interest rates could rise sharply, resulting in debt burdens which they can no longer finance.

"Consumers borrowed more than £9 billion on credit cards in December, which is now adding to the pressure on personal budgets. The average household debt is now estimated at 111 per cent of average household annual disposable income and this figure, which is already at an all time high, is likely to be higher in the aftermath of the Christmas and New Year period.

"In particular, the household debts of adults in their twenties have recently increased by more than 300 per cent. This is of particular concern, since this age group has the least secure employment and is most vulnerable to downturns in the economy.

"In its pre-budget statement on 27 November the government admitted that the economy is unlikely to perform as well as was originally forecast in April this year. It is therefore vital that people take on debt with their eyes open. They must realise that they will have to repay it all one day and will incur significant levels of interest. This means they may effectively be paying up to 30 per cent more for their purchases.

"The upshot of overspending at Christmas is that many people enter the New Year at a financial disadvantage and are unable to meet their domestic bills which, in turn, pushes them further into debt the following year. To break the cycle consumers need to be sensible about their spending now and re-consider the desirability of immediate consumption.

"There are numerous possible explanations for the consumer boom. But many people will certainly currently be spending money on property, holidays or consumer goods because of the low levels of returns currently available on savings, poor stock market conditions and falling confidence in the pensions industry. Many are feeling that the best thing we can do with our money is to spend it.

"This state of affairs must in the end be addressed by the restoration of confidence in the savings market, and in particular in pensions. Consumer confidence in private sector pensions has suffered because their perceived inability to deliver decent retirement incomes and due to the inability of the system to afford adequate protection to members' rights. The government's green paper on pensions, published in December 2002, has sought to tackle these concerns."

"The green paper discussed ways in which individuals could be given more choice about pension products and more information as to what is available. But crucially it did not offer the necessary new incentives that will be needed if people are to once more forego immediate consumption in favour of investing for that far-off day when they retire.

"Although tax relief on contributions and the tax free lump sum have been retained, further initiatives to make it easier and more attractive to save through pensions are needed.

"Unless the current structural problems with pensions are addressed and resolved, lower earners in particular risk seeing their pension contributions producing a poor return by the time they retire.

"With respect to money purchase schemes, unless real improvements are made to the rules on compulsory annuity purchase, younger people will continue to conclude that other forms of investment, particularly the property market, are a better long-term bet, and those individuals who are currently having to buy annuities at historically low rates will continue to be disadvantaged."