Household debt set to increase, according to OBR
18/03/2016
The Office for Budget Responsibility (OBR) has said that it expects household debt to carry on growing in size until at least the end of the decade.
Official forecasts indicate that weak pay growth coupled with low interest rates is likely to provide households with a means to continue to live beyond their financial comfort zone, and the fiscal watchdog said such a long period of this would be “unprecedented”.
In total, it’s expected that household debt will rise to £58bn this year, while this figure is expected to increase to £68bn by the end of the decade. These figures are up from forecasts in November for the same periods, which suggested debt would stand at £41bn and £49.2bn respectively.
It’s expected that consumption growth will be fuelled by consumers raiding their savings, while borrowing over the next five years will be accommodated by the Bank of England’s “extremely accommodative monetary policy”.
The OBR said in it’s latest UK health check that a sustained household deficit of this level is something that has not yet been witnessed: “The persistence of a household deficit of this size would be unprecedented in the latest historical data, which extend back to 1987”. Data from the watchdog between 1963 and 1987 “showed the household surplus moving into negative territory in only one year”, according to the OBR.
However, since the economic recession, rising consumer confidence has boosted consumption leading to spending outpacing pay growth for a sustained period. In order to fuel the increased consumption, consumers have borrowed more or sold assets, and the OBR expects net unsecured borrowing on credit cards and loans to rise to £662bn by the end of the decade.
By 2020, the OBR says that the unsecured debt-to-income ratio could be as high as 46 per cent.
Need financial advice?
If you have any personal finance questions related to this news article, then please contact our financial advisers. You can get in touch by asking a question online, calling us on 0800 092 1245, or by arranging a visit.
Share this..
Related stories
Are we on the verge of a change in government?
The last couple of days have seen Parliament grab the headlines for the wrong reasons with scandal, resignations and internal bickering happening on all levels of UK government. It looks highly likely that we could see a significant change in the direction of the Labour Party and the UK government, with calls for an immediate general election growing stronger. So how will this affect the UK econom...
Read MoreCEBR predicts sterling will struggle in 2010
The Centre for Economics and Business Research (CEBR) has issued a report on the UK economy with a suggestion that sterling will fall below parity against the euro. Citing a number of issues within the UK which include the state of the economy, the government budget deficit, national debt and record levels of personal debt the CEBR is concerned that the UK economy could "fall off the edge of a cli...
Read MoreHas George Osborne gone a step too far?
George Osborne's announcement that he wants to limit cash bonus payments in the short term to just £2000, with other arrangements paid in shares or other similar financial instruments, has upset many in the city and is seen by some as a step too far. Even though the suggestions from George Osborne, who is Shadow Chancellor of the Exchequer, appear to be sensible and well thought out, he is puttin...
Read MoreGood news on the horizon at John Lewis
UK retail bellwether the John Lewis Partnership yesterday confirmed that sales for the week were down 1.3% against the same period last year which is a marked improvement from the 9.8% slump the previous week. However, the management also confirmed this may be due to the timing of the school half term and winter purchases prior to Christmas.
Even though this improvement in weekly sa...
British Chamber of Commerce upbeat on UK economy
The British Chamber of Commerce has today issued a surprising report in which the association has increased its forecast for UK economic growth in 2010 from 1.3% to 1.7%. The forecast for 2011 has also been increased from 2% to 2.2% although rather surprisingly the British Chamber of Commerce has also signalled its concern about the medium-term outlook for the UK economy. Over the next five yea...
Read More