This makes perfect sense; banks are under huge political pressure to lend more money but shareholders will start voting with their feet if they get a sniff of loans being handed out to dodgy credits.
Check out the chart on borrowing costs; there’s actually been a rise in credit card rates, reflecting the higher risk of default.
I’m still concerned that the banks have a more skeletons than the Natural History Museum in the form of exposure to loan arrears and credit card debts that will get worse over the coming months.
Rising debts and falling savings don’t bode well for discretionary spending with holiday travel and non-essential items likely to take a hit.
National Debt
I won’t open the lid of Pandora Brown’s spending box (there’s enough there for an article in its own right), but rising unemployment could perversely lead to higher interest rates.
Research by a clever guy at Schroders says that this year benefit payments in the UK will exceed income tax and National Insurance contributions by £25 billion (these figures come from the Treasury, not random guesswork). So the workers are already paying all their dues to those who can’t (or won’t) work, leaving nothing for hospitals, teachers and bobbies on the beat.
I don’t know what level of unemployment was used in this calculation, but given that most Treasury projections bear the hallmark of JK Rowling I doubt they’re anywhere near pessimistic enough. So a higher level of unemployment will mean less income tax and more benefit payments.
At the moment the government has to sell gilts (government bonds) most days in between breakfast and lunch just to keep the country ticking over. If bond investors feel that the UK has reached the financial tipping point and is unable to repay its debts then they’ll refuse to buy any more of its bonds.
