LONDON — As the British economy has slowed, a new study finds that a combination of low growth, a falling government debt, and a low level of household debt is fueling the debt crisis.
The latest study, published Thursday by the London-based Institute for Fiscal Studies (IFS), finds that household debt and GDP growth have fallen by more than 20% since the financial crisis, as well as the level of public debt, while debt-to-GDP growth has fallen by 50% and household debt has increased by more then 60%.
In the wake of the Brexit vote and the election of President Donald Trump, households have faced a sharp increase in debt.
The study, titled The UK’s Debt Crisis and The Economy: The Long Shadow, notes that the economy grew by 0.4% in the fourth quarter of 2019, the lowest rate in 20 years, and it was “unprecedented”.
In the last year, the average UK household has been forced to borrow £11,000, compared with £4,800 in 2016.
According to the report, the impact of the country’s economic slowdown on the debt-driven housing market has been particularly pronounced.
Households have been forced into borrowing to make ends meet, while property developers have been unable to meet their costs due to falling prices and the lack of growth.
In the first quarter of 2020, the UK’s housing market was hit by an average of £2.5bn in defaults on loans and foreclosures, with an average number of defaults each day rising to 2,972 per day in September.
Inflation has been rising as well, as the UK has been hit by a fall in the value of the pound since the Brexit referendum, resulting in inflationary pressures on consumer prices.
In September 2019, inflation averaged 0.3%, with a reading of 0.2% in October.
The IFS study also found that household consumption had been hit hard by the decline in GDP, and that this has led to a significant fall in household income.
The average household in the UK had seen a drop of £5,000 from £30,000 in the second quarter of 2017 to £28,000 by the third quarter of 2018, the study found.
The UK’s debt-for-Growth ratio (the proportion of household income going towards debt servicing) has fallen to 62.7%, according to the study.
The ratio is down from a high of 78.3% in 2009.
It has been reported that debt-servicing costs were responsible for a 20% fall in GDP in the first three quarters of 2020 compared to the same period in 2017, with households reporting higher household debt servicing costs as a result.
The report concludes that the UK economy needs to focus on building up the infrastructure of the private sector.