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Threats to UK Economy

Since 2000 the only G7 country in which there is a steady increase in the wealth inequality observed is UK and is also leading one global race. Here are presented some major threats to the UK financial stability and the broader economy, recently outlined by the Bank of England in its Financial Stability Report.

Household Debt

UK household borrowing is again more on rise, even after the period of reduction of expenditures. Unsecured lending i.e. payday loans and credit card debts are increasing at a rate of almost £1 billion per month and the incomes are falling for the most. Secured lending has also risen. The Bank of England along with International Monetary Fund (IMF) have warned that overestimated property prices and associated household indebtedness both pose a great threat to the UK economy.

As a result, bank policymakers have told the lenders to restrict the amount of people borrowing more than 4.5 times their income to not more than 15pc. If the mortgage rate was 3pc higher than the rate at the time of loan approval then banks are required to stress test the borrower’s ability to repay the loan.

uk economy



Asset Price Rises

Through increasing wealth and confidence the worth of a property has a strong effect on consumer spending. The government since the crash is focused on stimulating the prices, by subsidizing mortgage credit through schemes like Help to Buy. An immediate drop in property prices has been observed because of the financial crash. But the bubble is not burst fully and they have already started to rise once again. The total value of housing stock in London and South East has risen by £435 billion and a net loss of £206 million over the past five years, across everywhere else. Analysts have predicted that the private renting is on its way of becoming a new major asset class in UK. 19% of all residential property is owned by private lenders which was only 12% ten years ago.

Oil Prices

The Bank of England state that the price movements have become more unpredictable as a fall in June’s high $111 reflects a weaker demand and increased supply. Policymakers say that the decreasing oil prices will boost the UK and all the struggling countries of Europe, as they import oil more than the exporting. Falling prices means a consumers and business can access the oil at reduced prices, to save cash and spend it on other goods and services. Unlike Russia and Saudi Arabia UK’s economy has many chances to boost up as a result of tumbling oil prices.

Banking System and Cyber Threats

According to the Bank’s latest stress test, three of Britain Banks will be in danger if another financial crash hits the UK economy. The Bank of England states that “Royal Bank of Scotland (RBS), Lloyds Banking Group and the Co-operative Bank were found to be the most susceptible to a housing crash and spike in unemployment”. Only the Co-Operative Bank has failed the stress test is asked to speed up plans to increase its finances. Bank also stated that lenders are not taking the cyber-crimes seriously and the regulators are working with the firms to create a timetable to tackle this problem.

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