The Most Important Chart You'll See This Year

This is an updated version of a chart I've used before - from the recent Budget Report (chart 1.3). It shows private sector debt in the UK. This chart shows ONS estimates and in previous years these estimates were lower than those produced by McKinsey. However let's take it at face value.

From the 2013 Budget Report.

What this shows is that private debt is still ca. 440% of GDP. Household a little under 100% of GDP and non-finance business debt at about 105% of GDP.

Clearly there have been some deleveraging from the peaks in 2010, in the order of 50% of GDP (About £750 billion). But none of it was in 2012.

Households account for very little of the deleveraging, perhaps 10% of the total (and recall that the OBR predict household debt will rise to 2018). Non-finance business debt has dropped by about 10% points. Most of the deleveraging has in fact come in the finance sector - and most of their debt is owed to each other.

The most important thing this chart shows is why growth is slow.

Growth is slow because demand is low. Demand is low because non-finance business and household debt have doubled in the last 20 years.  

The last 20 years were not years of increasing prosperity they were years of increasing personal and business indebtedness. 

We can't expect more private investment to change this situation. Only government investment can turn this situation around. If the private sector invests while it's customers are mired in debt, then the investment won't pay off because there won't be increased spending to make the investment pay off!