The perfect storm
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.