The UK debt crisis has three constituent parts – household, government and banking. The fact that households, government and banks all went on a debt binge at the same time makes the risks for the UK economy so unusual. The European Commission is now estimating that total UK Government debt will rise above £1.3trillion by the end of 2011, representing a more than trebling in the total debt load since 1997. If interest rates normalise to the 5% or so seen during recoveries in previous cycles, this will see the interest service bill alone rise to around £65billion a year – more than double the total defence budget. Assuming continuing to print money to fund the deficit is not a option, an increasingly substantial part of UK financial resources will have to be diverted away from education, welfare and investment to pay for the cost of the debt explosion through this recession.
Household debt has more than trebled over the past decade – rising from just under £500billion in 1997 to almost £1.5trillion
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