Think we are out of the woods yet?

The Office for Budget Responsibility yesterday said it will announce soon better than expected growth rates for the economy for the year, fuelled largely by strong performance between July and September.  I don’t know about you, but most of the growth I have seen has been in those businesses where their customers have stocked up their shelves before the January VAT increase, often with a discount or on deferred credit terms.  Meanwhile many other businesses continue to hurt, wondering where their next sales are going to come from, lacking any real visibilty as to their income.  In other words, much, if not all, of the growth in the economy this year has been created by an unreal ‘deadline’ set by the government.  It has created a short term blip in demand, it is not fuelled by the long term strength of the UK or world economies.

So what does the future really hold for us all?  Should we be looking forward optimistically or pessimistically to the New Year?

The world economy seems to be lurching from one debt crisis to another causing short term blips in the overall trends.  Putting these to one side, as I explained in my November newsletter, I expect the overall picture to remain pretty bleak for most of us in the Black Country, indeed the UK outside of the South East.  I say this because the figures underpinning the economy remain very scary indeed.  Here are just a few of those figures, provided courtesy of Credit Action, a UK debt charity:

  • UK Public Sector Net Debt (‘PSND’) stood at £955 billion in October, on which we are ‘paying’ £119 million in interest every single day.  To put this into context every day and a half the country is paying interest equivalent to the cost of building Russells Hall, Corbett and the Guest Hospitals !  And the PSND is still continung to grow – at £4,000 per second!  It is estimated that interest on PSND will rise to £182 million a day in 2015-16.  And that assumes interest rates do not increase significantly as a result of what is going on with our European brethren’s economies and banking systems!
  • UK personal debt (secured and unsecured lending) stands at £1,452 billion, half as much again as we owe as a country – and look how seriously the government considers this issue!  In the last year UK banks and building societies have written off almost £10 billion in loans they have made to individuals, a miniscule figure compared to the level of debt owed.  Despite the recent announcement that the level of bank write offs against credit card debts fell in the last quarter, I do not see this is evidence of an improvement in the quality of the banks’ loan books.  I see the following as evidence of major underlying problems such that I expect the banks to have to write off very significant sums indeed of personal debt: the huge level of personal debt out there simply cannot be sustained – and it is hardly moving despite the fact that people are generally trying to pay down their debts; there is no end in sight to the continuing stagnation of the property market; interest rates simply cannot continue indefinitely at these low rates; almost 1,600 people are losing their jobs through redundancy every day; and 1,000 people are seeking help for the first time on their debts every single day.  These all suggest to me that UK individuals are to see even more pain, and this will impact on customer demand for products and services supplied by UK businesses.  The Lord who recent said ‘you have never had it so good’ got it wrong, what he should have said is ‘you will not see things as good as this for some considerable time, expect major pain’.  There are major bank debt write offs to come, far, far higher than we have already seen, and these will impact on UK tax revenues (unless they further increase their charges to the rest of us to pay for their earlier, arguably bad, lending).  Indeed the banks’ increased willingness to short settle customer debts at ever lower amounts suggests they too agree there are major problems ahead.

If ever you should want to persuade your other half or kids to rein in their spending, just point them in the direction of Credit Action’s other stats, the figures are truly mind-boggling.  Here’s a link to the latest figures should you want to persuade them to have  a frugal Christmas!

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