Archive for April 22, 2015

IMF States Economic Recovery at Risk

It seems like these comments come along every week, in fact you’d probably manage to find IMF comments to support most divergent policies if you looked hard enough.  Although their latest statements regarding the economy rings very true with us on Jubileesouth.org.

It’s focussed not on our national debt for once, but on the household debt figures – the amount of debt that an average British household has to cope with.  Just like any sort of debt, it has to be serviced and can have a huge effect on our daily lives and the economy in general.  It’s quite simple really, an economy grows if it can stimulate demand and keep it’s output growing.  However domestic demand is obviously going to be related to our spending power, of which Britain has a problem.

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Families in the UK simply have more debt than the vast majority of developed countries, in fact the only comparable country is Portugal.  This is a country which has already sought emergency funding because it nearly ran out of money, it’s not a club that the UK wants to be a member of.

IMF suggests that household debt is 87% of GDP in the UK, compared with 82% in Portugal, 72% in Spain, 55% in Germany and less than 40% in France and Italy.

So are UK families excessive consumers?  Do we wander around on credit fuelled spending sprees and consistently live beyond our means?  Well the answer is no, not particularly our debt levels are largely due to our obsession with home ownership.

Houses are expensive in the UK, largely due to the laws of supply and demand.  The UK simply doesn’t have enough houses and demand is always very high. it’s simply hard coded into our identity – own your own home at all costs. Prices are unlikely to fall in the short term at least until some serious increases in supply are undertaken which also seems unlikely.

Just take a look at the UK media, get yourself a subscription to a proxy service like this and have a look at the BBC and other UK TV services.  You’ll see evidence of the UK’s obsession with home ownership pretty quickly, thousands of hours every week with buying, selling and upgrading property.

The problems is that this particular desire is extremely expensive, house prices are amongst the highest in the world and even the process of buying a house is expensive. Yet we all try and do this, an inevitably take on huge levels of debt in order to own our own home. Never mind property costs, first you have to deal with estate agent fees, removal costs, and stamp duty – average cost of moving or buying – about £12,000 currently.

UK consumers are unlikely to be able to either save enough or spend to fuel a domestic demand driven recovery with these sort of costs to contend with.  But until we change our outlook about owning property then it is likely that household debt is likely to stay extremely high.

Jennie Calwood

http://www.uktv-online.com/