A report by consultants McKinsey has found that the UK and Japan’s debt levels as a percentage of GDP far exceed any of the world’s other major economies. Total UK debt, which includes households, financial institutions and government debts, amounts to 507% of GDP. This is only exceeded by Japan (512%).
UK property has been a factor in the difficult prospect of deleveraging debts. UK banks, which hold levels of debt at 219% of GDP, have been more sympathetic over repayments than the likes of the United States, the report suggests.
As such, the lessened ability of individuals and companies to pay their essential bills coupled with banks’ ignorance about the quality of their loans is a significant impairment to confidence and the flow of credit.
The UK private sector exposure to debt in the five weakest Eurozone countries (Ireland, Italy, Greece, Portugal, and Spain) is at £189.5 billion.
The report notes that US and UK business and property investment declined sharply during the credit crisis by roughly one third. Growth in business investment has remained weak in the UK, where only London property has shown signs of growth and sustainable value over a sustained period.
There are signs of a recovery in the US, however, after success in deleveraging – reducing total debts as a percentage of GDP by 16 percentage points –instilled some confidence in lending again.
As long as the UK business sector continues to save rather than invest, the strong economic growth that was the biggest factor in reducing government deficits in Sweden and Finland in the 1990s will not materialise, the consultants suggest.
Given very low interest rates, this would be a good time for private investment in property and infrastructure. This remains the only credible source of funding, given that low UK borrowing rates depend primarily on the government’s commitment to its austerity plans.
Carlo is a London based freelance writer. He loves blogging and he is a keen observer of commercial properties for sale in UK. He write also about business, renting market and investments.