UK debt to soar to financial crisis levels over next five years
UK debt could rise to £6.7 trillion by 2023, from £5.1 trillion in 2017, according to new research.
The UK’s debt as a percentage of gross domestic product (GDP) is predicted to rise to nearly 260 per cent of GDP, a level not seen since the financial crisis.
The debt increase is expected to largely come from increased borrowing by companies and households, which are both predicted to borrow at a faster rate than economic growth, the analysis from accountancy firm PwC said.
The government is likely to reduce the size of its debt relative to GDP over the next five years, but even so, the net effect is set to be a gradual rise in the economy’s debt-to-GDP ratio from 252 per cent in 2017 to just under 260 per cent in 2023.
Total debt repayments could rise from a little above £150bn in 2017 to around £250bn by 2023 if interest rates rise two per cent.
Low income households could be hit particularly hard due to rising debt interest payments.
Chief economist at PwC John Hawksworth said: “While the financial crisis led to the private sector deleveraging, we’ve seen a change in behaviour among households and non-financial companies since 2015, when they began to accumulate debt at a faster rate than nominal GDP growth.
“The unusual amount of uncertainty facing the UK economy in 2018-19 due to Brexit, London’s stumbling housing market and the likelihood of further interest rate increases, means a pause in debt accumulation relative to GDP is possible in the short term.
“But if a smooth Brexit transition is agreed with the EU and UK business and consumer confidence recovers, the private sector is likely to resume faster rates of borrowing that could cause the debt stock to rise further relative to GDP.”