Its pretty easy to look through the US Fed flow of funds tables, but UK data is harder to add up.
With signs of falling house prices, just how dependent is the UK on credit growth?
There are a myriad of stats from the government but I have just tried
to add up central government borrowing and individual lending, as they
are both a form of consumption supporting credit creation. While
corporate borrowing finances balance sheets and financial debt is driven
Since the end of 2009 the UK economy in nominal terms has grown
14.5%, or £240bn in output to the end of 2016. Unfortunately debt has
grown by £820bn, or +44% of 2016 GDP. Over the last 5 years the sum of
government and individual borrowing had been roughly 3.5x nominal GDP
In the last 5 years growth in credit to government and individuals
has averaged 6.4% of GDP, while nominal GDP has only grown 2.1%.
Over the last 5 years the UK government has borrowed an average of £83bn a year and individuals £30.5bn.
With final demand being so dependent on credit being created for
consumption and credit growing 3.5x faster than GDP, its hardly
surprising Carney is reluctant to raise interest rates and Osborne
resorted to pumping up a housing bubble to try and offset austerity.
Only problem is what happens if housing starts to fall and takes
individual credit demand with it, or in a state of full employment wage
pressures force the BoE to start raising interest rates, as is happening
in the US.
I suspect it will take a strong dose of a very weak currency and
Perfidious Albion, with respect to Brexit arrangements, to get out of
For what its worth, the US has been growing combined Federal, state and individual debt around 3x GDP during this cycle as well.
Source: UK data is from ONS and BoE datasets