The more pessimistic amongst economic commentators often claim that the UK’s economic recovery is being driven by high levels of corporate and personal debt.
Some have been saying that this is not the case however since 2014 and now the view is backed by Bank of England governor Mark Carney.
Private Sector Debt Is down
Carney says that private sector debt is down in the wake of the financial crisis as people and enterprises have used any spare money they may have to pay down debts rather than commit to more spending. However, he warns that household debt in the UK is still high and that levels are expected to continue to rise until the end of the decade.
When the cost of servicing debt accounts for more than 35 per cent of household income Mr Carney warns that it starts to become dangerous. It’s at these levels where people may be struggling to pay their debts and start looking for solutions like IVA’s arranged through companies such as www.carringtondean.com and others to resolve their problems.
The appearance of some recovery in the economy combined with continued low interest rates has seen many people becoming more willing to borrow to make large purchases like cars and home improvements. New car sales reached record levels in 2015. Whilst this is partly driven by debt it’s also down to people taking advantage of the new pension freedoms to withdraw money from their funds.
In the wake of the economic crisis both individuals and consumers were averse to taking risks, but Carney sees the UK returning to a more normal environment with the rise in consumer credit. He also says that the retail banking sector remains profitable despite a toughening up of capital rules and lending requirements.
Economic growth did slow a little at the end of 2015, which contributed to the Bank of England’s decision not to raise interest rates. Continued uncertainty in world stock markets as we enter 2016 means that rates are likely to stay low for some time. This is bad news for savers who are seeing little return on their investments, but good for borrowers. However, people taking on larger debts like mortgages need to be aware that rates will rise eventually and ensure that they’re able to meet higher repayments when that happens.