Households’ heavy debts could hurt the UK’s economic recovery

 
Tim Wallace
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Those with high debts are sensitive to shocks (Source: Getty)
Britons are still carrying heavy private debts, the International Monetary Fund (IMF) warned yesterday, which could hamper the burgeoning economic recovery.

High rates of borrowing in the pre-crash years led to a consumer boom as debt-funded spending drove economic growth.

But “the crisis exposed the fragility of this credit-driven growth model and the risks to growth associated with high debt,” the IMF said in its financial stability report yesterday.

It noted that those with high debts are sensitive to shocks, and so cut spending when times turn bad.

On top of that, those with a lot of debt have little wiggle-room to benefit from lower interest rates when bad economic times do strike.

“Gross household debt in the United Kingdom is projected to remain high compared with that of other major advanced economies,” the IMF said.

Its analysts did note that inflation and economic growth have helped reduce some of the burden of debt.

But it added that as a result of past borrowing, British households have been unable to take full advantage of low interest rates since 2009.

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