Are we heading for an 80’s ‘Lawson boom’ repeat?

Are we heading for an 80’s ‘Lawson boom’ repeat?

Credit rating agency Fitch has warned that the UK’s households are borrowing more money than they are saving for the first time since the so-called Lawson boom in the Eighties.

British families are on average, savers.  However, for the past nine months households have been in deficit which long term could have significant consequences for the UK economy.  Fitch said in a report published last week, “It is typically the household sector that does the saving”. Said Brian Coulton, Fitch’s chief economist.  “That has nearly always been the pattern in the UK, apart from one quarter in the late Eighties, at the peak of the Lawson boom, where it moved into a deficit, and we know that didn’t end well”.

Consumer spending has helped support the economy in recent years, however conversely it has also left UK families with more debt than the average household faced three decades ago.  The amount of debt consumers are taking on is rising at nearly 10pc per annum, while average earnings are up by less than 3pc.  In 2008 the debt to income ration of UK households fell from 138pc to 122pc, the latest rise in borrowing means the debt is piling up again.

Mr Coulton added “I don’t see in the near-term that this ratio is going to stabilise, it will continue to rise”.  “If it carries on at these rates it would take around for years to get it all the way back up to the peak”.

 

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