The Bank of England (BoE) has warned that a significant rise in personal debt could ‘pose a danger to the UK economy’.
The Bank revealed that car loans, credit card balance transfers and personal loans have increased by 10% over the past year, whereas household incomes have risen by just 1.5%.
High street banks are at risk of entering a ‘spiral of complacency’ during a period of good economic performance and low loan issues, the BoE also suggested.
It warned that as the spiral continues, borrowers risk accumulating ‘more and more’ debt.
The BoE stated that it may urge banks to implement further safeguards against the risk of bad debts.
Commenting on the rise in personal debt, Alex Brazier, Financial Stability Director at the BoE, said: ‘Household debt – like most things that are good in moderation – can be dangerous in excess. Dangerous to borrowers, lenders and, most importantly from our perspective, everyone else in the economy.’
The International Monetary Fund (IMF) has downgraded the UK’s growth forecast for 2017 from 2% to 1.7%.
It attributed the downgrade to the UK’s weaker-than-expected economic performance in the first three months of this year.
However, growth forecasts for France, Germany, Italy and Spain have been revised upwards.
The latest IMF forecast is just below the Bank of England’s: the Bank predicts that the UK economy will grow by 1.9% this year.
Meanwhile, UK growth forecasts for 2018 remain unchanged at 1.5%, the IMF revealed. Global economic predictions for next year also remain the same, with the IMF anticipating global growth of 3.6%.
Commenting on the downgrade, a Treasury spokesperson said: ‘This forecast underscores exactly why our plans to increase productivity and ensure we get the very best deal with the EU are vitally important.
‘We will continue to deliver greater prosperity and higher living standards for hard working people across the country.’
The UK economy experienced the weakest rate of growth in the EU during the first quarter of this year, figures published by European statistics agency Eurostat have suggested.
Britain’s economy grew by just 0.2% in the three months to March – a significant fall from the rate of 0.7% recorded during the last quarter of 2016.
Experts believe that Brexit was partly to blame for the UK’s low economic growth rate, alongside rising prices due to lower sterling.
The data also revealed that growth for the EU as a whole totalled 0.6% in the first quarter of 2017. It found that the French economy grew by 0.4%, whilst German economic growth rose by 0.6%.
Economists expect Britain’s Gross Domestic Product (GDP) rate to rise slightly in the coming months.
The UK economy is set to grow by 1.6% by the end of 2017, as predicted by the Organisation for Economic Co-operation and Development (OECD). However, the OECD also expects UK economic growth to fall to 1% during 2018, as Brexit looms.
A snap poll carried out by the Institute of Directors (IoD) has found that, following the General Election and the subsequent Hung Parliament, business confidence in the UK economy has ‘fallen dramatically’.
The poll of 700 IoD members revealed that businesses require ‘rapid agreement’ on transitional arrangements that arise from Brexit talks, alongside clarity as to whether EU nationals already residing in the UK will be permitted to remain in the country following Brexit.
Businesses also have ‘no desire’ for another election this year, the poll suggested.
The IoD has called for the government’s main priority to be striking a new trade deal with the EU.
It also warned that political uncertainty generated by the election could have ‘disastrous’ consequences for the UK economy.
Stephen Martin, Director General of the IoD, said: ‘The needs of business and the discussion of the economy were largely absent from the [General Election] campaign, but this crash in confidence shows how urgently that must change in the new government.’
A survey carried out by the Confederation of British Industry (CBI) has revealed that, in the three months to April, UK manufacturers’ domestic orders improved at the ‘fastest pace since July 2014’.
Meanwhile, export orders recorded the strongest growth in six years, according to the CBI’s latest Industrial Trends Survey. This was conducted before the announcement of a General Election.
However, the CBI also revealed that the weak pound pushed up costs, with manufacturers reporting the strongest rise in unit costs in six years.
Rain Newton-Smith, Chief Economist at the CBI, commented: ‘UK manufacturers are enjoying strong growth in demand from customers in the UK and overseas, and continue to ramp up production.
‘Exports have surged and firms are at their most optimistic about selling overseas in over four decades. Even so, the combination of the weak pound and recovering commodity prices means that cost pressures continue to build, and manufacturers report no sign of them abating over the near-term.’
The International Monetary Fund (IMF) has raised its UK growth forecast for 2017 for the second time in three months.
Within its half-yearly World Economic Outlook, the IMF predicts that the UK economy will now grow by 2% this year, up from its previous forecast of 1.5%. This makes the UK economy the second fastest growing advanced economy, after the US economy.
The IMF stated that the forecast has been raised in response to the stronger than expected performance of the UK economy since the vote to leave the EU last year.
However, UK economic growth is expected to slow to 1.5% in 2018.
Commenting on the IMF’s decision to raise its growth forecast, Chancellor Philip Hammond said: ‘The fundamentals of our economy are strong and we continue to invest in the skills needed for a stronger and fairer Britain.’ Mr Hammond also stated that Britain will play ‘an active and engaged role in the global economy’.
The UK economy has started to slow following ‘impressive growth’ at the end of 2016, according to the latest Markit/CIPS Purchasing Managers’ Index (PMI) for the UK’s services sector.
The services PMI for February fell to 53.3 from a figure of 54.5 in January, representing a five-month low. Despite this, it remains above the threshold that separates growth from contraction: a PMI reading below 50 indicates contraction.
A ‘softer pace of business growth’ and weaker consumer spending have contributed to the slowdown.
Chris Williamson, Chief Business Economist at IHS Markit, commented: ‘A further slowdown in UK business activity growth in February adds to the evidence that the economy has lost momentum after the impressive expansion seen at the end of last year.
‘Inflationary pressures remained the highest for six years as firms struggled with rising costs associated with the weak pound, but optimism about the year ahead remained elevated by recent standards.’