By Philip Bunn of the Bank’s Structural Economic Analysis Division and May Rostom of the Bank’s Banking System Division.
This article is the first study to use microdata to assess the role of debt levels in determining UK households’ spending patterns over the course of the recent recession. There is evidence that high levels of household debt have been associated with deeper downturns and more protracted recoveries in the United Kingdom. Cuts in spending associated with debt are estimated to have reduced the level of aggregate private consumption by around 2% after 2007, unwinding the faster growth in spending by highly indebted households, relative to other households, before the financial crisis.
Household debt and spending