UK Debt in Comparative Perspective: The Pernicious Legacy of Financial Sector Debt

The UK has the highest private debt among the G7 states plus Spain. Both financial services and household debt are high. Financial services debt is much the more consequential of the two sectors. It was a central component of the growth model of the UK prior to 2008 and its legacy is making the UK's recovery from recession extremely difficult. Financial sector debt also had an impact on the UK's rising borrowing requirement from 2007. However, it was not the direct cause of the rise in the UK's budget deficit, which was in large part a product of the Brown government's approach to its political difficulties as growth came to an end. Despite the UK's high budget deficit in comparative terms, the UK has enjoyed considerable fiscal autonomy the past few years. However, this autonomy could yet be threatened by the ongoing consequences of financial sector debt.