IMF: Debt binge of £203bn threatens to sink the UK economy
A surge in household borrowing is paving the way for another financial crisis, according to the International Monetary Fund.
In a hard-hitting report published ahead of its annual meetings in Washington this week, the watchdog warned of ‘risks down the road’ from rising levels of debt.
And raising the prospect of a new financial disaster, ten years on from the last, the Fund said: ‘Higher household debt is associated with a greater probability of a banking crisis, especially when debt is already high.
A surge in household borrowing is paving the way for another financial crisis, according to the International Monetary Fund
‘A sudden economic shock – such as a decline in home prices – can trigger a spiral of credit defaults that shakes the foundations of the financial system.’
The intervention will set alarm bells ringing among central bankers and top politicians as they prepare for this week’s gathering at the IMF headquarters in Washington.
The bleak warning comes amid mounting concern over rising debt levels in the UK. Household debt levels fell as a proportion of national income in the UK following the financial crisis, from around 150 per cent to 130 per cent, but they have surged back to 137 per cent over the past two years.
The Bank of England’s latest figures show British households have racked up unsecured debts of £203 billion on credit cards, car finance, overdrafts and other loans.
The Bank of England’s latest figures show British households have racked up unsecured debts of £203 billion on credit cards, car finance, overdrafts and other loans
Central bank officials now fear UK lenders could lose £30 billion in the next downturn as heavily indebted borrowers struggle to pay back what they owe
Central bank officials now fear UK lenders could lose £30 billion in the next downturn as heavily indebted borrowers struggle to pay back what they owe.
‘Growing debt levels signal risks down the road,’ said IMF economists Claudio Raddatz and Jay Surti.
‘Periods of robust growth and seeming calm in financial markets can be followed by a sudden surge in market volatility and an unexpected economic downdraft.’
Fellow IMF official Nico Valckx said economies can initially benefit from rising levels of household debt as the extra spending boosts the economy.
‘Debt greases the wheels of the economy,’ Valckx said. ‘It allows individuals to make big investments today – like buying a house or going to college – by pledging some of their future earnings. That’s all fine in theory.
‘But as the global financial crisis showed, rapid growth in household debt – especially mortgages – can be dangerous.’
The IMF warned that households were binging on debt once again as memories of the last financial crisis faded.
‘Given the misery the crisis caused, you might think people have become skittish about borrowing more,’ said Valckx. ‘Surprisingly, that’s not the case.’
Forget coughing fits, pranksters and tumbling letters for a minute. Along with a car crash speech for Theresa May, the Tory party conference also brought a few policies that might make a difference to our financial lives.
Student fees, housebuilding and an energy price cap all came up on the agenda.
On this week’s This is Money podcast, Simon Lambert, Georgie Frost and Laura Whitcombe take a look at whether this is just tinkering around the edges, or a solid plan to improve three highly controversial areas?
The views expressed in the contents above are those of our users and do not necessarily reflect the views of MailOnline.
We are no longer accepting comments on this article.
Part of the Daily Mail, The Mail on Sunday & Metro Media Group
October 12, 2017
Sources:` Daily Mail
All nine Bank of England policymakers voted to leave interest rates unchanged in December as they said inflation should start easing back next year.
Going from Darwin to Adelaide means covering 1850 miles of highway where the 50m road trains are king, where drink-driving is common, and temperatures can reach 50 degrees centigrade.
The milestone, which according to insiders was passed last month, has spurred manufacturers to ramp up plans for fully electric vehicles in order to meet demand.
The cold winter nights provide an ideal excuse to curl up on the sofa and enjoy some TV. But now, thanks to a major viewing revolution, you can dramatically cut the cost of watching most shows.
With little-known website called Zeek.me, you can advertise your gift card online where other shoppers can buy them. Zeek lets you offer discount on the face value of the card.
Netflix has a string of popular hits including the Royal drama The Crown, which is fronted by Claire Foy (pictured), Stranger Things and House of Cards.
Post Office Online Isa now offers 1.07 per cent. But this rate is boosted by a 0.82 percentage-point bonus which runs for a year. After that your rate drops to just 0.25 per cent.