Economics Weekly by Lloyds TSB

There is little doubt that 20 years of ever rising leverage is now over. The period of rising debt was characterised by an increase in the frequency, and intensity, of financial crisis, culminating in the worst collapse since the 1930s.

UK households start to save

There is little doubt that 20 years of ever rising leverage is now over. The period of rising debt was characterised by an increase in the frequency, and intensity, of financial crisis, culminating in the worst collapse since the 1930s. Ever rising debt was not just a UK phenomenon but it, and the US, experienced the fastest growth in indebtedness during the last decade, see chart a, reflecting a widening gap between domestic savings and investment. So, critical to the resolution of the global financial crisis is a period of deleveraging – where households and companies pay back debt or, at least, peg borrowing growth below income growth.

Since UK economic growth in the last decade has been boosted by increased borrowing, exemplified through the fast pace of growth in consumer spending, the trend pace of overall economic growth in the next decade will likely be significantly slower than in the last decade.

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