The Bank of England has predicted further gloom for the UK’s economy, reporting that the country is headed for a 1930s style depression.
The Bank's latest report said there are early symptoms of being trapped in a debt deflation trap where families find themselves pushed further into debt each month.
The report suggests that Britain is particularly at risk because there is a high proportion of families with significant levels of debt, and many of them are on fixed mortgage rate, which means they will not benefit from rate cuts.
Britons’ total personal debt – the amount owed on mortgages, loans and credit cards – is, at £1.46 trillion, more than the value of what the UK produces in a year.
Each household now owes an average of approximately £60,000.
The Bank’s report says: “This configuration of falling asset prices and depressed economic conditions in the face of an adverse demand shock is consistent with recent and prospective macroeconomic developments in the United Kingdom and internationally.”
Alistair Darling, Chancellor of the Exchequer, acknowledged that the economic situation was “grave” and pledged not to allow a depression to happen.
Darling signalled that the G20 meeting on April 2 must not be allowed to mirror a 1933 summit in London which failed to halt the Great Depression.
He said failure to agree co-ordinated action then meant that the Depression continued for years when it “need not have done so”.