According to the Guardian:
The number of people defaulting on their credit card bills and personal loans jumped in the three months to the end of June, according the Bank of England, underlining the pressure on household budgets as prices rise faster than wages.
Default rates “increased significantly” between April and June, and lenders expect rates to increase further on credit card lending in the third quarter, the Bank said in its latest credit conditions survey.
That does not, of course, mean the whole edifice of personal debt is tottering right now. I seriously doubt that it is. Just as most mortgage account holders carried on paying right through the crisis from 2007 onwards most households in the UK will still service their debts. Thankfully. But let's not rejoice about that because behind that fact is the real story, which is that many of them will suffer severe stress when doing so and nothing is going to make this easier.
We know real wages are falling. We know that there is no prospect of that changing. Brexit guarantees we will be worse off; for all the bravado of those who proposed it we know that there is no other possible outcome.
And we know that if the government sticks to its plans to deliver a balanced budget the chance of a recession that the government has not got the intellectual will or ability to tackle is high, because that was the real message subliminally and almost certainly unconsciously implicit in yesterday's report on future financial risk from the Office for Budget Responsibility.
Then there is another factor, and that is that Brexit may just fail. Martin Wolf hits the nail on the head with this one today, saying:
Britain is incapable of managing Brexit and calamity will follow
I am increasingly inclined to think he is right: whatever the political rights and wrongs of Brexit we just can't do it. From simply getting the right HMRC IT in place, to having the skills to negotiate the deals, let alone having the parliamentary resource to deliver the legislation, we just can't deliver Brexit. We have set out on a course much harder than getting to the moon was when JFK promised that. We're not even going to get to the launchpad at the current rate of progress, so poorly is everything being managed. But the countdown will continue nonetheless. That is May's legacy.
In the millions of households struggling with debt the crisis is every bill. In Westminster I do not think the equivalent reality to that those householders face has yet been appreciated. They are still obsessed with pettiness, such as party leadership. But the day of settlement is coming. And in the case of the UK at some time later this year the realisation will dawn that however hard we juggle Brexit cannot be made to work, not even if we agree to every EU demand as it is tabled, as now seems likely given precedents to date. Even then we could simply not make it work on the ground. And yes, if I was the EU I would be leaving the UK with two weeks in April 2019 to suffer mayhem as a result before its grovelling appeals for assistance were considered.
And that the EU might help us is our only hope in all this. The only way we can solve our crisis is with the goodwill of the very people we spurned. Which puts us very much in the position of the bankrupt householder whose only way out of their situation can ultimately be a compromise with their creditors. But the householder has an advantage: there is a provision for bankruptcy in the law. Any deal with the EU will depend solely on goodwill. The longer this goes on the less of that there will be.
Most householders will get through their debt issues. That's a fact. Will the UK get through its bigger crisis? We can't know yet. But I can't see anyway it can. We're now like the team at the bottom of the Premiership at Christmas. There is still plenty to play for, a lot of agony to come, and almost certain failure to face. That team's supporters will deny the odds but in their hearts they know the likelihood that they'll be playing Ipswich Town* in the Championship is extraordinarily high next season.
The chance that we'll fail at Brexit is equivalent to that: not certain, but near as dammit a fact now. And the difficulty is that there is no Championship as consolation. It would be very wise to admit that long before settlement day and default arrives.
* I have always supported Ipswich Town. No club has played in the Championship longer than they have.
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I just look at Boris Johnson and know we are so screwed.
I take all your points Richard, but I think your Premier League analogy needs a little embellishment to make it more relevant.
The Premier League, you will recall was formed by breakaway inspired by the big clubs a quarter of a century ago the league structure was transformed in a manner designed to maximise the money that could be ‘generated’ by the game.
The fixture demands and initial good management by some clubs led to a few of the bigger clubs dominating. with subsequent law changes only serving to entrench this. It all tended to
favour a certain style of play, the kind that suits big, tall, fit, efficient players from teams with huge resources;. Subsequent rule changes have only served to reinforce the advantage of these clubs.
To compete, smaller clubs, and a couple of the initially mismanaged former giants, got themselves into huge debt, and when they found that their ticket revenues were insufficient, they asked for just a little bit more of a share of the monstrous pile of TV cash — most of which was hoarded by the big clubs. In the analogy world, they were told to effoff, had their managers replaced, their squads ransacked and were relegated to the Championship, Divisions thre and four – and, in one spiteful case, to the Rymans League with an on going 48 point deduction at the begnning of each season. Essentially now they are only feeder clubs and it’s unlikely they will ever retain their former status.
Meanwhile the bigger clubs found that even they couldn’t afford the kind of wages they were having to pay to compete and devised all sorts of ways to extract cash from their supporters — driving many of them into debt too — with now a significant chance that the whole lot could collapse.
Yes we are at the bottom, yes our management team is awful, and too many of our support like to relieve themselves into fountaints, but we DO have the option of sacking them, dropping down a division, developing a few of our own players and coming back, if not stronger, then very much happier with the way we’re playing.
And if that doesn’t work, then there’s cricket.
“and, in one spiteful case, to the Rymans League with an on going 48 point deduction at the begnning of each season.”
What club was that?
I was struggling to think who that was
In 1978 I was at Wembley when Ipswich won the FA Cup by beating Arsenal 1-0 and behind the goal for a prime view of the shot. The scorer was Osborne, now that name is familiar.
I remember
But he was a lad from Westerfield (my patch) and George wasn’t
Happy memories
The picture from the Bank of England credit conditions report is a little more nuanced. They say:
Defaults
– Lenders reported that default rates on secured loans to households fell significantly in Q2, and expected these to fall slightly further in Q3.
– Default rates on both credit card and other unsecured lending to households were reported to have increased significantly in Q2, and were expected to
increase further on credit card lending in Q3.
– Lenders reported that default rates on loans to businesses of all sizes decreased in Q2, and significantly so on loans to medium businesses. But lenders
expected an increase in the default rate on loans to firms of all sizes in Q3.
So a mix of good and bad, with a particularly good outlook for property owned on a mortgage . Almost too good to be true, imv.
A technical point though – you say ‘real incomes are falling’. The data says real incomes HAVE FALLEN in the last 12 months, past tense. Assuming part of the fall is due to the 16% currency devaluation since the independence referendum result ( lol ), and there is no devaluation in the next 12 months, then the effect of this will come out of the data.
In other words what I see was right: I am not sure what you were arguing with
And it is not the exchange rates that drove negative earnings that have yet to recover from 2008, it was inflation. They are linked, but actually the differential remains so your assumption is wrong.
A bit like Leicester City Christmas 2014.
As I said possible
But not likely, by a long way
Continuing the football analogies, in some ways you are a bit like Jamie Rednapp these days.
You’ve let me there….
I think it’s amazing that every Tory MP will yell “we [the country, in one sense] can’t borrow any more money” while ignoring the fact that we [the same country, in another sense] is doing exactly that, individually, every damn day.
True
In other words, white is black, truth are lies, etc. While the UK as a whole, which can’t go bust as Richard has explained, pursues a self defeating course of austerity, private individuals, who can go bust, borrow ever more just to keep their heads above water, due to effects of austerity and Brexit.
Brilliant. Well done the Tories!
But wait Labour believed and still believe in this stuff.
Better to point the finger at most of the political class and not just the Tories.
What risk do you see to the housing market through this?
My concern has always been interest rates (although every time it seems like they might start rising, they don’t..)
I can’t see how the market can eventually have such high rates when wages are stagnant: sometime that relationship has to be reflected in prices
whilst you are no fan of buy to let, rental yields are so poor at the moment. as house prices are too high and growth on wages to poor. on 20 years ago 15% was the norm, no longer.
I would like to point out that Luton was one of the highest growth areas in a report a few months ago. So you may well ask. when an area isnt so good, getting good growth, you knwo the market is over valued and heading for a fall.
It’s ok the Chinese will buy us out just like half the Premier League.
And our energy infrastructure.
Oh.
One of my big concerns is that there are far more investors than people realise (also this is not just a London thing) and if their sentiment changes they will exit, which would cause problems..
Richard,
Now you’ve got me worried, and you are giving fuel to our opponents. If as you say the state is not capable of delivering Brexit, and for example HMRC can’t get it’s IT in place, then our enemies will ask just what exactly is it that the state is capable of delivering?
A fantastic and world beating NHS
Phenomenal education
But not crass stupidity in unrealistic timescales
Accrington Stanley comes to mind!
Who, you ask? That’s the point – Britain will be relegated to dining with the minnows, scraping an existence with the bottom feeders.
I’d like to say Accrington, by compensation, is a lovely place, but I can’t. It’s poor and, apart from a couple of months in the Summer, it’s dismal. I suspect a lot of Brexiteers live there.
“I can’t see how the market can eventually have such high rates when wages are stagnant: sometime that relationship has to be reflected in prices”
When foreign investors are distorting the housing market, higher prices can continue for far longer than the domestic market would normally allow.
This article makes for interesting reading:
https://www.theguardian.com/cities/2017/jul/14/locals-first-manchester-flats-ban-foreign-investors#comments
Maybe…
UK housing is a worldwide reserve asset
Will it stay so?
“whatever the political rights and wrongs of Brexit we just can’t do it….simply getting the right HMRC IT in place, …skills to negotiate the deals, ….the parliamentary resource to deliver the legislation.”
It is probable that Barnier etc know it – sitting their having set out their table and folded their arms & watching the UK cut itself down to size – not so much “please sir can I have more” – rather please sir we have made a mistake can we cancel Art 50 – the response it likely to be an interesting list of conditions.
Oddly there was a rather fine article in the Telegraph (odd but true) on the Macron – Merkel dynamic – with Macron hoping that things would changes with respect to the ECB/bundesbank & financing & the artificial limits set on gov debt (I fear he is going to be disappointed).
The unknown is where Corbyn stands – perhaps he sees Brexit as an opportunity to set an example to other Euro countries of what you can do when a government controls own currency (as opposed to the ECB). Interesting times.