New Report Shows Warning Signs of UK Debt Crunch

Debt

New Report Shows Warning Signs of UK Debt Crunch

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A study into British household debt has raised particular concerns about the indebtedness of lower-middle income families who may not be able to keep up as interest rates around the world look set to rise.

The British think-tank, the Resolution Foundation on February 12 published a report into levels of private indebtedness in the United Kingdom which it says show the early warning signs of a renewed credit crisis that could be brought on by higher interest rates or another financial shock.

The reports authors draw a comparison between the recent surge in private debt borrowing levels in the last year and the period leading up to the collapse of Lehman Brothers in the United States. Private household debt in the UK is now estimated at US$2.6 trillion (£ 1.9 trillion). While most of the accumulated private debt has been acquired by wealthier households who, the authors conclude, are better placed to weather future financial shocks, signs of debt stress have begun showing themselves among lower and middle income households.

Stock markets around the world have experienced levels of volatility not seen since the 2008 Global Financial Crisis, prompting fears of a return to economic meltdown. On February 5, the New York Stock Exchange saw its largest single drop in value on record. Fears have steadily increased over the likelihood of further interest rate rises in the US which would raise the cost of borrowing money and which, necessarily affect economic growth in the rest of the world.

In a press statement coinciding with the report’s publication, Matt Whittaker, the organization’s chief economist and author of the report noted, “It is very worrying that almost half of low income families are already showing signs of debt distress. While rates have been at historic lows for a decade now, many families have experienced a tight income squeeze over this period and have not been able to get back on the front foot when it comes to servicing their debts.”

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