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Tuesday, 9 December 2014

The Bank of England is preparing the next crash

Richard Murphy
Tax Research UK

The FT worries me this morning. First it said this:

The UK can have a growing banking sector without condemning itself to more frequent and costly financial crises, the Bank of England has said.

The sector is on course to double from its current size to more than 950 per cent of UK gross domestic product by 2050, far outstripping projected increases in other Group of 20 nations, the BoE said in a report published on Monday.

Then there was this:

The Bank of England says the vast majority of mortgage borrowers could handle interest rate rises of up to 2 percentage points, marking a significant shift in its stance on how higher borrowing costs will hit household finances.

The shift signals that the BoE is getting closer to changing policy and wants to reassure the public and financial markets that Britain’s borrowers can cope.

Both of which have to be read in the context of the FT noting last week that:

The new [Office for Budget Responsibility] forecasts show UK household debt rising even faster than previously thought in the next parliament (2015-20) to a record high of more than 180 per cent of gross domestic product.

And this has to also be noted in the light of the Resolution Foundation’s quite reasonable warning that maybe one million UK households would be plunged into debt crisis by the mortgage rate rises the Bank of England is now envisioning.

So, what is happening here? I suggest there are three things.

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