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UK's total debt forecast to hit £10 trillion by 2015

UK's total debt forecast to hit £10 trillion by 2015
(i.e. we will collectively owe £167K for every man, woman and child in Britain)

Britain's total debt will top £10 trillion by 2015, according to PricewaterhouseCoopers, which warned the burden could slow growth for decades as interest rates eventually rise.

Despite government austerity measures, PWC sees the UK's debt to GDP ratio sticking near historic highs. Photo: PA
By Emma Rowley6:00AM GMT 09 Nov 2010155 Comments
Property-related borrowing and lending between financial institutions helped the collected debt of households, businesses and government balloon from roughly twice gross domestic product (GDP) in 1987 to around 5.4 times by 2009, when total debt stood at £7.5 trillion, according to the report.

Despite government austerity measures, the firm's latest economic outlook sees the UK's debt to GDP ratio sticking near historic highs as borrowing hits £10.2 trillion by 2015.
But if the economy does not perform as well as expected, one plausible alternative scenario could still see the debt burden soar as high as 5.8 times of GDP, the report said.
Deleveraging will go well beyond the immediate challenge of getting public finances under control, PwC warned.
While attention is on reining in government borrowing, the "debt explosion" seen since the mid-1980s has been most marked in the private sector, it said.

Even in 2009, government debt was still less than a sixth of the size of the private sector's total debt, which grew as financial institutions geared up in search of higher returns on equity and pre-recession house price rises fuelled mortgage lending for households.

The increased burden has so far been supported by low interest rates, but these are likely to rise "significantly" over the next five years, said PwC. The firm believes interest rates on mortgages may end up higher than before the recession, as tougher regulation pushes up lenders' costs.

The projections will stoke fears for households kept afloat by near-zero rates.

"The UK's addiction to debt has reached alarming levels during the past decade," said John Hawksworth, chief economist at PwC.

The unprecedented levels of private sector debt would, sooner or later, have to be addressed, "either through debt being run down sharply, which would risk triggering another recession, or more likely through a persistently heavy debt service burden that could dampen economic growth for decades to come".
He added: "Either way, deleveraging will be a painful process for the UK."

Separately, the Organisation for Economic Cooperation and Development said the leading economies appear to be diverging as they recover, with the UK among those facing a downturn.
While the organisation's composite leading indicators (CLI) – a measure of economic turning points – stayed steady for its 33 members as a group, there were marked differences between rival nations.

Signs pointing to a "moderate downturn" in the UK, Canada, France, India and Italy offset indicators of continuing expansion in Germany, Japan, the US and Russia.
Indicators for Brazil and China were worse, implying industrial production will fall below longer-term trends.

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