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UK bad debts rising

by Jerome a Paris Tue Aug 2nd, 2005 at 07:17:22 AM EST

Yes, it's time for another "bash the UK economy" thread...

HSBC hit by 'difficult' UK credit market

HSBC, the world's third-biggest bank by market capitalisation, yesterday singled out the UK as its "most difficult" credit market as it reported a sharp increase in bad debts on credit cards and personal loans.

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Stephen Green, chief executive, said bad debts had increased as a result of rising interest rates and a change in the law on personal bankruptcies. In HSBC's UK consumer operations, provisions as a proportion of risk-weighted assets jumped to 1.47 per cent, from 0.98 per cent for the six months to the end of June.

The figures are further evidence of deteriorating credit conditions in the UK, where most large retail banks have warned of signs of distress among consumers who have borrowed heavily using credit cards or consumer loans. However, HSBC said it saw no sign of increasing arrears on mortgages, which account for the majority of household debt.

That last point is good news, but may not last in view of now stagnating house prices. Remember that the Dutch recession of the past few years has been in large part caused by a slowdown in consumption from stagnating house prices after several years of rapid growth.

Flat market pushes down house price growth (FT, 30 July)

The housing market has slowed dramatically since last year and prices have been stagnant in 2005, according to the new FT House Price index - the most accurate guide to the real trends in residential property prices.

The average British home cost 192,400 in June, almost the same as in January. The flat market has pushed the annual housing growth rate from a recent peak of 15 per cent last summer to 6.2 per cent last month.


The future of the property market in the medium term is unclear. But it could have an important bearing on consumer spending which is largely responsible for the current economic slowdown in the UK that is expected to prompt the Bank of England to cut interest rates next week.

This week, Sir Andrew Large, the Bank's deputy governor, acknowledged the role of the housing market when he said consumers might have put the brakes on spending because house prices were no longer rising.

All the signs are pointing in the same direction.

The point is not to bash the UK per se, but to show the likely direction for the world economy as the debt-fuelled growth of the Anglo countries sputters to a halt and confirms to skeptics that such growth was highly artificial.

The most interesting thing about the UK economy is that it is about a year ahead of the US one - its housing boom took off earlier, and is slowing down earlier because the Bank of England started rising interest rates about a year earlier than the Fed (but has stopped earlier, going from 3.25% to 4.75%, whereas the Fed has already gone from 1% to 3.25% and is still promising rises in the coming months).

Do note that Australia is even more in advance in this cycle and has already seen falling house prices.

Judging from the economic history of the last 20 years, I'm not sure this is the end of it (the end of US and/or British growth).

The US (Greenspan) method was of hitch-hiking to a new bubble every time the current on burst. I'm thinking of the US doing it again (and, if Brown is resourceful, maybe Britain before them this time). Tough, I don't have any guesses as to the likely next bubble.

Do you? Or, instead, do you think no bubble remains?

*Lunatic*, n.
One whose delusions are out of fashion.

by DoDo on Tue Aug 2nd, 2005 at 07:38:37 AM EST
If they are so worried about bad debts in this nation where personal debt exceeds £1 trillion, then why do they make it so easy for us Brits to obtain credit cards, loans and so on?  At one time, I had four credit cards with a total limit of in excess of £12000 (I could buy a car with that!).  (Note that I only have one card now, with a paltry £100 on it.)

Make it more difficult for people to get credit cards and loans and surely the amount of bad debts will go down?  Or is that too obvious?

by VincentVega on Tue Aug 2nd, 2005 at 07:39:37 AM EST
If they are so worried about bad debts in this nation where personal debt exceeds £1 trillion, then why do they make it so easy for us Brits to obtain credit cards, loans and so on?

It's a racket. A bubble. Banks compete for customers and the interests they pay on these credits, ignoring the crash on the medium term for the short-term profit and the long-term customer base. They may also hope that the state would bail them out if there is a problem, or that their losses in bad debts are set off by capital gains in a booming economy fed by consumerism-on-credit.

BTW, here in Hungary, banks try to set off the same process right now. Since late last year, I am bombarded by my bank with letters attached to every monthly account report, proposing to turn my simple bank card into a credit card. (I won't.)

*Lunatic*, n.
One whose delusions are out of fashion.

by DoDo on Tue Aug 2nd, 2005 at 07:46:46 AM EST
[ Parent ]
The Independent published this article by Stephen King, managing director of economics at HSBC, yesterday.

No deep soulsearching about "the macroeconomic policies followed on either side of the Atlantic". This rather vacuous comment:

If you ask a Frenchman or a German about economic systems, there will certainly be some disdain expressed about the "Anglo-Saxon model".

(I say vacuous because it really is rather gratuitously placed; he could easily have done without the remark, but seems to have wanted to put it in...)

Most of what he has to say seems to concern interest rates and how they are perceived, and the tweaks that might be attempted. But he finishes on this:

Should the US economy reaccelerate, that can only be good news in the short term for UK exporters, providing an external safety net to mitigate any fallout from the domestic housing market. Should the UK economy suffer a prolonged slowdown or, even worse, eventually plunge into recession, that can only be bad news for the US economy. It would suggest that no amount of monetary and fiscal manipulation is enough to deal with the underlying issue of excessive, economy-wide, debt: after all, housing booms very rarely end in anything other than leveraged tears.
by afew (afew(a in a circle)eurotrib_dot_com) on Tue Aug 2nd, 2005 at 08:57:43 AM EST

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