Home > UK GDP > Deleveraging is Easy. Deleveraging is… Good?

Deleveraging is Easy. Deleveraging is… Good?

I had not realised the extent of UK household deleveraging until I looked at the household income data.  Using the normal definition of leverage (the ratio between the stock of outstanding debt and the annual flow of income), household leverage has fallen from a 2008 peak of 175% to 144% by the end of 2012 – a level last seen in 2004.

UK Household Deleveraging

UK Household Deleveraging. Source: ONS NNPP, RPHQ

Using that ratio obscures the underlying movement of the two series, so if we split them back out we get this:

UK Household Deleveraging.

UK Household Deleveraging. Source: ONS as above

Those who assert that households “need” to deleverage (which is really an argument about expected future income) must address the question of the desired level of leverage.  Is 144% too high or too low; how should we decide where to draw the line?  Should we let central plannersbankers decide by plucking numbers out of the air?

And because debt is just (ah ha) money we owe to ourselves… let’s not forget household assets, which continue to dwarf liabilities; household net worth was up from £6tn in 2008 to £7tn in 2011 in the last Blue Book estimate, mind-boggling numbers.

UK Household Assets

UK Household Assets. Source: ONS NNML, NG4A

When the OBR forecasts for household debt and debt/income were published in 2011 there were some rather hysterical responses from Labour MP Chuka Umunna and others.  (Krugman’s claims there are surely too strong; income is just money that we pay to ourselves, so what has debt got do with it?  There was no debt in the babysitting co-op!)

The OBR have in any case now revised down their estimates and predict household debt/income will rise only to 153% by 2018 (previously 175% by 2015).  This revision was celebrated by nobody at all, as far as I can tell.

Categories: UK GDP
  1. James in London
    May 23, 2013 at 20:20

    Great chart at the top. Surprising vs consensus.

    I suppose the household debt has sort of been “nationalised” by the our government, and financed by the BoE. Total UK debt to GDP must have continued to rise, and households will have to pay back the debt our government has taken on our behalf, via taxes, at some point.

    It’s funny, though, the argument about the optimum level of household debt given the fears, including my fears, in 1998 about the levels. Obviously, “affordability” of the debt has massively improved as interest rates have fallen and those debt service/household income ratios have remained more or less stable. Although, I’m unsure whether they include repaymwnt of principal and not just the interest element.

  1. June 26, 2013 at 21:23

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