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Household debt `could trigger another downturn`

28/01/2010

The high level of debt carried by the British public is one of the things that could trigger another downturn, economists are warning.

An article in the Telegraph warns that `some of Britain`s problems, such as its expected £178 billion budget deficit and high levels of household debt, will remain even as the economy comes out of recession and could trigger another downturn`.

It quotes Jonathan Loynes, Chief Economist at Capital Economics, who said that: "The problems are rather long-term. Household debt is based on the expectation that house prices would keep rising and we went into the downturn with the finances already in a pretty dreadful state."

The economies of countries such as Japan and Germany, with their larger manufacturing sectors, may have contracted more sharply than the UK`s as factories closed down - but the governments of those countries were also more able to stimulate their industries, helping them come out of recession faster than the UK.

Latest figures from the Bank of England show that the British public currently owe £1.459 trillion. £1.232 trillion of that is in the form of secured debt, while £227 billion is unsecured debt (personal loans, credit card debts, etc.).

The Bank`s figures show that people collectively repaid more unsecured debt than they took on in every month from July to November last year (figures for December haven`t been published yet). On average, they repaid around £400 million more unsecured debt than they took on in each of those five months.

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Consumers took on more mortgage debt in July 26/08/2010 - Consumers took on £2bn more mortgage debt than they repaid Debts called in by parents 26/08/2010 - According to research, `the bank of Mum and Dad` is Teenagers `scared of debt` 19/08/2010 - Nearly two thirds of teenagers are `scared` of debt, according Rising household costs could pressure people in debt 10/08/2010 - The UK may be about to see a rise in