IMF officials join growing chorus of experts warning about mounting debt

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There were fresh warnings this week that rising levels of household borrowing could pave the way for another financial crash.

The International Monetary Fund (IMF) has released a report which makes plain that there could be significant risks attached to spiralling levels of debt.

The document, released this week, is the latest to raise concerns that the current state of affairs could ultimately lead to a similar crisis to the one which rocked the global economy a decade ago.

“Higher household debt is associated with a greater probability of a banking crisis, especially when debt is already high,” said the IMF study.

“A sudden economic shock – such as a decline in home prices – can trigger a spiral of credit defaults that shakes the foundations of the financial system.”

The trend has set alarm bells ringing in a number of countries, including the UK.

Following the last recession, household debt as a proportion of national income fell considerably, but has started to rise again in the course of the past two years.

According to recent data collated by the Bank of England, British households have amassed unsecured debts exceeding £200billion, principally through credit cards, overdrafts and other loan arrangements.

The IMF’s Nico Valckx suggested that memories of the difficulties that arose ten years ago may have faded surprisingly rapidly.

“Given the misery the crisis caused, you might think people have become skittish about borrowing more,” he said. “Surprisingly, that’s not the case.”

The expert team at Gibson Hewitt can advise on all issues relating to debt. For further advice, please contact us.