UK personal debt exceeds UK GDP for second year running - says
Grant Thornton
For the second year running UK personal debt stands at a higher
level than UK GDP meaning the country would have to dip into the
proceeds from next year's GDP to pay off all its outstanding
personal debt, scratching out what's owed on 8 January 2009.
Grant Thornton research shows that the total outstanding UK
consumer debt amassed through mortgages, loans and credit cards has
increased by 7.3% to £1,444 billion over the past year* up from
£1,346 billion in June 2007. Furthermore, personal debt has forged
ahead of UK GDP which, according to latest available data,
currently stands at £1,410** billion having increased by 5.1% in
nominal terms over the past year.
This shows that despite the credit crunch and stricter
conditions on lending to individuals, the UK continues to suffer
from its indulgence on relatively cheap borrowing over the past
several years.
Stephen Gifford, Grant Thornton's chief economist, says,
"Despite the global downturn flattening the growth of personal debt
and UK GDP over the past few quarters, debt levels continue to grow
at a faster rate than the income the UK generates."
"Although there is no cause for panic as personal debt is well
covered by the UK housing stock, the figures clearly illustrate the
continuing problem of growing personal debt levels in the UK. If
the property market and economy continue to weaken, the current
levels of personal debt will become unsustainable and there will be
a marked increase in personal insolvencies," says Gifford.
Gifford says that it is individuals reaching levels of
unmanageable debt rather than debt itself that is the problem and
that up until the past year personal debt had been a good earner
for the UK economy.
"UK economic growth has chugged along quite nicely thanks to
rising consumer spending which has largely been on credit. While
most of the debt is perfectly serviceable and secured on dwellings,
the rising number of insolvencies and repossessions is testament to
this process having a negative outcome for an increasing number of
individuals," he says.
Over the past ten years personal insolvencies have risen from an
average of 24,000 per year in 1997 to an average of over 100,000
per year in both 2006 and 2007***.
Mike Gerrard, a personal insolvency partner at Grant Thornton,
believes personal insolvencies are likely to increase even further
as at the midway point in 2008, individual insolvencies stand at
49,607**** and the effects of the credit crunch are yet to fully
feed through into the insolvency numbers.
"Typically, there is a lag between individuals facing tough
financial circumstances and when they become insolvent. It will be
the next six to 12 months which reveal how seriously the credit
crunch has affected individuals," he says.
Gerrard says personal insolvency numbers will certainly rise
above 100,000 for 2008 and are likely to eke toward a total of
120,000 for the year, although the more dramatic quarterly rises in
personal insolvencies won't show through until potentially Q4 this
year and the first few quarters of 2009.
The date when the UK can cover its consumer debt has arrived
later and later in the calendar over the past decade. In 1997 and
1998 the point where UK GDP covered UK personal debt fell on
tomorrow's date 23 August, the result of individual mortgage and
personal debt amounting to £503 billion compared to the GDP of £786
billion and £541 billion compared to GDP of £841 billion
respectively.
In ten years, the calendar date of this day has increased by
some five months. Last year, for personal debt levels in 2007, the
date when UK GDP covered all personal debt fell on 5 January 2008,
this year it falls on 8 January 2009.
* Year to end of June 2008, Bank of England, Monthly amounts
outstanding of total sterling net lending to individuals,
seasonally adjusted LPMVTXC
www.bankofengland.co.uk/statistics/ms/current/tabA5.2.xls
(VTXC)
** Year to Q1 2008 YBHA (National accounts: GDP: expenditure at
current market prices, Seasonally adjusted; £ million at current
prices)
http://www.statistics.gov.uk/STATBASE/tsdataset.asp?vlnk=574
Q2 2008 estimated according to GDP Preliminary estimate Q2 2008
First Release, ONS
***Insolvency Service statistics:
http://www.insolvency.gov.uk/otherinformation/statistics/statisticsmenu.htm
****Insolvency Statistics Q2 2008:
http://www.insolvency.gov.uk/otherinformation/statistics/200808/index.htm