Jaxson Hind explores the current financial state of UK households
Could the next financial crisis be right around the corner? MPs such as Rachel Reeves, the Labour chair of the business select committee, and Frank Field, the Labour head of the work and pensions select committee, are concerned that the debt is on the same level it reached prior to the 2008 financial crisis.
Therefore they have urged the government to set up an independent public inquiry into the £200 billion of debt that has been amassed by UK households.
These comments come amid fears that a raise in interest rates could put more households under pressure. The Governor of the Bank of England, Mark Carney, warned that interest rates were indeed likely to rise as a consequence of inflation and skills shortages.
Furthermore, the chief executive of the Financial Conduct Authority (“FCA”), Andrew Bailey, highlighted his concern about the number of people who require loans to “make ends meet.” Of particular note were gig economy workers, often finding themselves in a financially vulnerable position. The debt charity StepChange identified young people and renters as “increasingly vulnerable” with many needing to borrow more to cover basic everyday bills. Statistics from the Money Advice Service puts 8.3 million people in the UK with debt problems.
“There is a big question around how you provide credit. There is a case for people having access to credit [those who need loans],” Mr Bailey commented. He added “Credit is a means of smoothing [erratic incomes] (reference to the incomes of gig economy workers) but the question is how do you structure it in a sustainable fashion.”
The FCA, however, is not the first body to express concerns about the UK’s state of credit. Moody’s Investor Service commented that “British people have too much debt, not enough savings, their incomes are in decline, creating a real macroeconomic challenge.”
High levels of household debt, raising interest rates and declining incomes may prove to be a perfect storm that may indeed lead to the next financial crisis. It remains to be seen, however, if it will be on the same scale as in 2008.