Deleveraging - speech by Ben Broadbent

In a speech delivered at Market News International in London, Ben Broadbent – External Member of the Monetary Policy Committee – considers what the build-up of debt by UK firms and households prior to the financial crisis can tell us about the prospects for sustainable recovery, the key risks currently facing the economy, and the implications for policymakers.
Published on 15 March 2012

Broadbent notes that, consistent with historical evidence on recoveries from financial crises, recent growth in the UK has been sluggish. One view is that the crisis was the result of excessive borrowing by the domestic (non-financial) sector, and that healthier rates of economic growth can only resume when, after a period of higher saving, their gross debt ratios have retreated. But, despite the obvious importance of debt and the dangers of excessive borrowing, Broadbent is “... not convinced that, as a general matter, non-financial domestic leverage was the key reason for the UK’s financial crisis or, therefore, that it needs to return to some historical “norm” to declare the crisis at a definitive end.”

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