GDP might be growing, but new figures released this week show some cause for concern. Data about the state of the UK economy in the 12 months to November shows consumer borrowing and mortgage lending rising at their fastest rate since the financial crisis. At the same time, manufacturing and exports are projected to fall.
This model of debt-fuelled growth is unsustainable. When interest rates inevitably rise, further household borrowing will become unaffordable. If there’s no export-led growth to fall back on, a significant drop in consumer demand would risk returning the UK to recession.
It’s time for the Bank of England to intervene to address this imbalance. It must remove the drivers of increased mortgage lending and use innovative monetary policy tools to direct credit into the real economy. Our Sovereign Money report outlines how it could work.