The Bank of England must step in if the balance between household credit and GDP widens, its deputy governor for financial stability Jon Cunliffe has declared.
The Bank of England must step in if the balance between household credit and GDP widens, its deputy governor for financial stability Jon Cunliffe has declared.
Speaking at the British Property Federation Annual Residential Investment Conference in London today, he analysed how levels of credit grew faster than GDP in the decade to 2007 which led to the crash.
UK GDP is roughly in line with credit after experiencing a sharp correction with the financial crisis. Cunliffe reckoned we are currently in the equivalent period of 2002 when it comes to the balance between the two.
He said: “Given the vulnerability that already exists and the powerful drivers in the UK, particularly in the housing market, if credit began again to grow faster than GDP, I would want to think about action to manage the financial stability risks sooner rather than later.
“What are the financial stability and broader economic risks for the UK if credit consistently grows faster than GDP and as a result, debt-to-income resumes its upward path? That cannot continue indefinitely. Trees cannot grow to the sky.”
Cunliffe also noted the impact of stagnating real interest rates (interest minus inflation) around the globe as economies encourage lending.
He warned that if real interest rates shift downwards further that will push incomes down and therefore lead to lower economic growth.
