UK Economics Weekly:Are The Old Imbalances Returning?

Many of the old imbalances seem to be returning, with a record high in the currentaccount deficit, a record low in the household savings rate, plus a clear pickup inprivate credit growth — especially consumer credit. In prior cycles, the emergenceof major imbalances has usually been a sign that there is trouble ahead.

    Although imbalances are growing, we do not believe that the UK economy iscurrently on the cusp of a major retrenchment or downturn. In particular, debtservice burdens are currently very low and BoE policy rates are likely to stay fairlylow in coming years.

    The economy’s imbalances are likely to persist or grow in the next year or two,especially given headwinds from fiscal drag and modest external growth.

    Policymakers’ concern over imbalances is likely to grow over time. Brexit (which isnot our base case) would probably force the economy to re-balance via importcompression and a lower pound, but at the cost of a weaker growth outlook.