Tuesday, May 31, 2005

UK Economy is Slowing

Economic growth in the UK is starting to swoon because already highly leveraged consumers are running out of the ability to extract equity from their houses. This could happen here for the same reasons. People have been able to borrow from their house and buy other big ticket items, thereby fueling other sectors of the economy. Unfortunately, if house prices stay flat or fall, the ability to extract equity diminishes or disappears, which leads to less consumption.

“Britons are among the most heavily indebted citizens of the world's largest economies. Their borrowings amounted to 140 percent of disposable income in 2003, according to figures from the Paris-based Organization for Economic Cooperation and Development released in December. That compared with 118 percent in the U.S. In Germany, the proportion was 112 percent.

Higher borrowing costs and changes in bankruptcy laws are prompting a growing number of Britons to default on their debt. Insolvencies surged 28 percent to 13,229 in the first quarter, the highest since records began in 1960.

Debt Free Direct Group Plc, a U.K. debt-advice company, said May 3 its second-half revenue more than doubled to 858,000 pounds and predicted it will benefit from growing signs of ``consumer debt fatigue.'' The Chorley, Lancashire-based company's shares have doubled in the past 12 months.”


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