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A sixth of UK debt is held by those who have less than £200 a month left after essentials

Date: 3. December 2013
Gavin Kelly

Thursday’s Autumn Statement is likely to generate headlines about energy bills, improving public finances and the promise of a return to real wage growth in the new year. At least that is what George Osborne, the chancellor, will be hoping for. He should also prepare himself for another rash of stories about debt-soaked Britain. When people sift the detail, they will see a projection for household debt that is likely to rise above £2tn – a large and round number.

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Why the Bank of England should target wages as well as unemployment

Date: 6. November 2013
Matthew Whittaker

After months of relative inaction, MPC meetings are about to get very interesting again. While rate increases should be some way off yet, improvements in a range of economic indicators mean that ever more attention is set to shift towards the question of how and when monetary policy tightens. While calls for action are likely to build, the avoidance of premature movement will be vital. With the upturn in its infancy, household budgets still squeezed and millions of families exposed to repayment difficulties associated with debts built-up in the pre-crisis years, increases in rates that predate sustained improvements in household incomes risk choking off the recovery.

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Plugging the gap

Date: 2. October 2013
Matthew Whittaker

Have lower rates helped to plug the income/expenditure gap?

The latest Economic Review from the ONS provides the usual useful compilation of recent economic outputs, reinforcing the sense of momentum underpinning recovery, but questioning just how balanced this new growth is.
One of the most important imbalances it picks up is between consumption and investment. Although still some way short of its pre-crisis peak, the proportion of gross final expenditure (the sum of final uses of goods and services produced by, or imported to, the UK) accounted for by household expenditure has increased from an average of 46.2 per cent in 2011 to 46.9 per cent in Q1 2013.

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The ticking debt bomb?

Date: 2. May 2013
Matthew Whittaker

This blog originally appeared on Public Finance

When the financial crisis first hit, politicians of all parties talked up the notion of ‘rebalancing’ the economy, moving away from a growth model dependent on financial services, house price increases and consumption and towards one based on the real economy and on trade. Five years on and, with little sign of a sustained economic recovery, the chancellor appeared to wind the clock back in his last Budget.

The new Help to Buy scheme is designed to give a shot in the arm to the housing market, making it easier for households who are currently considered too risky by lenders to get onto and move up the housing ladder.

 

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Chill out about the debt bubble? Not yet.

Date: 18. May 2012
Gavin Kelly

This post originally appeared on Gavin's New Statesman blog

What role did high levels of household debt play in generating the crash and what do they mean for our economy over the next few years?

Well-worn questions, you might think. And no shortage of people have asserted answers.  Following 2008, a whole new crunch-lit genre of books emerged to explore this. There is – or perhaps, was – something of a post-crash orthodoxy that the rise of easy credit, fuelled by run-away rewards for the super rich, and a squeeze elsewhere, encouraged ever greater borrowing.

A favoured narrative, often echoed by the coalition, is that debt ballooned as consumers (and home buyers) went on an irresponsible binge – it was all demand-led.  Others argue, particularly in the US, that exploding debt reflects an act of policy – whether explicit or implicit – to increase the supply of easy credit for low and middle income groups who were seeing their wages stagnate.  From this perspective, it was less a story of families living beyond their means and more about coping when their means stopped growing.

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Debt and inequality conundrums

Date: 15. May 2012
James Plunkett

This post originally appeared on the OECD blog

How did inequality and household debt interact in the run up to the 2008/09 financial crisis?  Today, a new report by NIESR for the Resolution Foundation provides new evidence on that question for the UK. The new analysis confirms the severity of the borrowing situation of low income households in Britain before the crash and raises difficult questions about patterns of consumption in an era of high inequality.

The report’s key contribution is to dig beneath headline figures for household debt to describe the borrowing picture for households at different points in the income distribution. It’s well established that UK household debt, in common with many other countries, ballooned in the late 1990s and 2000s, with the aggregate savings ratio—the percentage of household disposable income that is saved—turning negative in 2008 for the first time since records began. Yet so far these headline figures have been something of a black box. 

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Family debt

When rates finally rise, things are set to get nasty

Date: 18. July 2011
Gavin Kelly and

This blog first appeared in the New Statesman.

A good recession followed by a bad recovery. Trite lines like this are often wide of the mark, but this one bears some truth. The fallout of the economic downturn over the last few years – though harsh - was less gruesome than first feared in terms of overall unemployment, bankruptcies and repossessions.

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