In the first half of this year the UK GDP growth stood at 2,5% y/y thanks to a 2,8% increase in household consumption, expected to grow further (+3%) by the end of the year. Many indicators point to an improvement in the economic situation of households, from those of the labor market (unemployment rate down to 5,4%), to incomes recovering (+3,5% in the first two quarters), to favorable expectations expressed in the confidence surveys. Since 2014, the savings rate has returned below 5%, less than half of the maximum peak of the last decade, reached in 2010. The positive evolution of the various aggregates has been accompanied by the strengthening of the trend in credit to households however, it is still lower than the levels prior to 2007. In particular, the demand for mortgage loans and refinancing is on the rise and disbursements for mortgages and consumer credit are strengthening.
After six consecutive years of slowdown, in 2014 the level of household debt started to grow again, reaching 156% of disposable income, 4 percentage points more than the previous year. Although the maximum level recorded in 2007 (183%) is far away, the reversal of the trend is alarming the British authorities. Lenders have been recommended to carry out "stress-tests" in the process of granting new loans to monitor debt sustainability in adverse conditions and to limit to a maximum of 15% the share of new mortgage loans equal to or greater than 4,5 times disposable income. The favorable trend in net financial wealth and real estate wealth provides further support to households' perception of well-being: in the first quarter of 2015, the amount of financial assets net of liabilities exceeded 4.400 billion, a record value. The value of homes, also of 4.400 billion in 2013 (last year available), is assumed to have increased further in view of the lively trend in the real estate market.
Attachments: Focus no. 38 – 09 November 2015.pdf
