UK’s Total Debt to Hit £10 Trillion by 2015 – PwC

Lucas Gilmore, “Big 4″ observer
November 17, 2010 /

The latest PwC report attributed its forecast of UK debt rise to property-related borrowing and lending between financial institutions, warning that the rise in interest rates may bog down the growth for decades.

PwC said the lending and borrowing resulted in a rise in GDP from roughly twice its value in 1987 to about 5.4 times by 2009 during which the total debt stood only at £7.5 trillion. But this figure could still climb as high as 5.8 times of GDP if the economy would not show any progress, PwC warned.

The report said that the increase in debt is most noticeable in the private sector which ballooned due to the gearing up of financial institutions looking for higher returns on equity. Low interest rates are likely behind the increase in burden which is expected to rise over the next five years, PwC said.

Households that are kept at a near-zero rate may also be affected as PwC projected a higher interest rate in mortgages following a hike in the lenders’ costs due to sterner regulations.

PwC chief economist John Hawksworth said, “The UK’s addiction to debt has reached alarming levels during the past decade.” Hawksworth suggested that to address the soaring debt of the private sector, it should be run down sharply or a heavy debt service may be imposed as well.

“Either way, deleveraging will be a painful process for the UK,” he added.

PwC stated that indications of a “moderate downturn” in the UK, Canada, France, India and Italy counterbalance the signs of expansions going on in Germany, Japan, the US and Russia. Its report showed a worse state of Brazil’s and China’s indicators that could result in a decline below longer-term trends of industrial production.

 

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