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Families are expected to run up £40 billion of debt this year sparking fears about Britain’s economic recovery. Labour raised concerns that millions of households would face “serious hardship” if interest rates rise and warned the borrowing trend could harm the economy.

Latest Office for Budget Responsibility (OBR) forecasts found that households have moved from a surplus of £67 billion in the year the coalition took power to a £40 billion deficit this year.

Unsustainable borrowing is on course to near the levels reached in the run-up to the 2008 financial crash, according to Labour.

Seema Malhotra, shadow chief secretary to the Treasury, said: “George Osborne is relying on millions of British families going further into debt to hit his growth targets.

“This is risky behaviour from a Chancellor whose policy decisions are hurting not helping British families. Alarm bells should be ringing. There is a real risk that millions of families will face serious hardship if interest rates start to rise.

“Of course families need access to credit and the ability to borrow to invest for the future. George Osborne should be seeking to rebalance the economy away from an over-reliance on borrowing and debt.

“Labour is clear about the need for a strong and sustainable economic recovery. Osborne’s short-term political decisions risk real long-term damage to the finances of millions of British families and the nation’s economy.”

Former business secretary Sir Vince Cable warned that Britain was returning to “old and unhappily discredited” methods of economic growth.  “We’re back on the treadmill of growth being sustained by personal borrowing. Much of it is against an inflating housing stock.

“Taken together with other indicators like the very weak external deficit position, it suggests we’re getting back to the old and unhappily discredited forms of economic growth.”

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