– UK debt crisis is here – consumer spending, employment and sterling fall while inflation takes off
– Personal debt crisis coming to fore – litigation cases go beyond 2008 levels
– October consumer spending fell by 2% in October, the fastest year-on-year decline in four years
– Britons ‘face expensive Christmas dinner’ as food price inflation soars
– Gold investors buying physical gold due to precarious UK and US outlook
Editor: Mark O’Byrne
The long heralded UK debt crisis is here and data released in the U.K. this week clearly shows this.
This is seen in UK retail sales and consumer spending which plunged in October, employment falling, pay stagnant and inflation ticking higher as sterling remains under pressure.
Yesterday, official UK figures showed prices were up by 4.2% last month on 12 months earlier, the highest level in four years. Britons ‘face expensive Christmas dinner’ as food price inflation soars reported The Guardian yesterday.
Meanwhile stock markets make new highs every week but the underlying economic data is not reflecting the “irrational exuberance” being seen in global stock markets.
Increased litigation as consumer debt climbs
Personal loans are becoming increasingly dangerous and more bubblelicious than even the stock market.
We have outlined a few times how UK consumer debt levels are at dangerous highs risking a new UK debt crisis. Recently Standard & Poor’s raised their own concerns regarding the rapid rise in UK consumer debts.
The rapid rise in UK consumer debt to £200bn from car finance, personal loans and credit cards is unsustainable at current growth rates and should raise “red flags” for the major lenders, ratings agency Standard & Poor’s has warned. – The Guardian
The high levels of debt are down to easy monetary policy, according to the standards agency:
Loose monetary policy, cheap central bank term funding schemes and benign economic conditions have supported consumer credit supply and demand.
However this is unsustainable and major lenders should be on high alert due to the low levels of repayments. The situation is now so bad that the number of cases taken to court over late payments have reached levels higher than those seen in 2008.
As explained in the FT:
Consumers who refuse to repay their debts are increasingly being taken to court, with litigation at levels last seen in the run-up to the 2007-08 financial crisis.
New figures show there were 910,345 county court judgments in the nine months to the end of September. This is an increase of 34 per cent per on the same period in 2016, and compares with 827,000 in the whole of 2008, at the onset of the financial crisis.
The rise in court judgments is another indication of the high levels of unsecured debt weighing on British consumers, with Bank of England data showing that borrowing through credit cards, overdrafts and car loans has topped £200bn for the first time since the global crisis.
All of this is despite low unemployment levels and an apparent increase in real incomes. The Daily Mail provided an interesting snapshot of where some of the excess debt is coming. Namely in the form of car loans which are almost mimicking the subprime market seen in the run up to 2008:
The situation of increased loans doesn’t even seem to be helping the wider economy. Retail sales have fallen sharply.
High borrowing but low spending
October’s retail figures made for some dire reading. According to Visa spending fell by 2% in October, the fastest year-on-year decline in four years.
As outlined in the Guardian:
Clothing and footwear sales slumped by 9%, the biggest year-on-year decline since Visa started its survey in 2009.
Food and drink retailers experienced a 2% drop in takings, the biggest fall since March 2014. Spending on recreation and culture dropped by 2.9%, the biggest decline since March 2011.
Visa explained the poor figures on financial strains on households. Despite the apparent rise in real incomes the fact is inflation is climbing and shrinkflation is really impacting household expenses, not to mention Brexit.
Visa said the poor performance was partly due to the drop in real wages in recent months, as pay rises have failed to keep up with inflation. But it added that the slowdown in growth this year, and Brexit uncertainty, were also gnawing at consumer confidence.
The Bank of England’s decision to raise interest rates, to 0.5%, for the first time in a decade could also hurt household spending in the coming months, Visa said.
The life raft of gold
The above is just a a quick snapshot of how things at the grassroots level of the UK economy are and suggest a new UK debt crisis looms large. Real world economic conditions are really not projecting the same confidence that the stock markets are.
Usually when things are performing as well as they are in equity markets then we see gold outflows and major sales. This has not been the case, as mentioned in Reuters:
“In theory, and in the past, when you have exceptional markets and low volatility, gold was much, much lower – but nobody’s selling gold,” Davis Hall, head of FX and precious metals at Indosuez Wealth Management, said.
“At some point, this stock market run is going to run into some profit-taking, for one reason or another,” he said. “As a hedge, gold’s definitely still the best viable alternative for high exposure to global equity positions.”
Whilst the price might not have performed to the level many were expecting, it is still significantly up on the year – by over 11%.
Gold’s price climb, along with low gold liquidations, increased demand for gold coins and bars and central bank purchases suggests that gold buyers have identified that not all is as it seems in the so called “recovery”.
It is obvious from both political and economic events that the global economic crisis is not over. Data shows that we are fast approaching circumstances worse than those seen prior to 2008. Sadly no one is acknowledging them and solutions and preparations are not being considered.
In response gold owners are hanging onto the one solution they do know has worked time and time again – physical, allocated and segregated gold.
News and Commentary
Gold Prices (LBMA AM)
15 Nov: USD 1,285.70, GBP 976.62 & EUR 1,086.29 per ounce
14 Nov: USD 1,273.70, GBP 972.47 & EUR 1,086.59 per ounce
13 Nov: USD 1,278.40, GBP 977.59 & EUR 1,097.89 per ounce
10 Nov: USD 1,284.45, GBP 976.44 & EUR 1,102.19 per ounce
09 Nov: USD 1,284.00, GBP 980.98 & EUR 1,106.29 per ounce
08 Nov: USD 1,282.25, GBP 976.82 & EUR 1,105.43 per ounce
07 Nov: USD 1,276.35, GBP 970.92 & EUR 1,103.28 per ounce
Silver Prices (LBMA)
15 Nov: USD 17.12, GBP 13.00 & EUR 14.45 per ounce
14 Nov: USD 16.94, GBP 12.92 & EUR 14.45 per ounce
13 Nov: USD 16.93, GBP 12.93 & EUR 14.53 per ounce
10 Nov: USD 17.00, GBP 12.92 & EUR 14.60 per ounce
09 Nov: USD 17.10, GBP 13.03 & EUR 14.69 per ounce
08 Nov: USD 17.00, GBP 12.96 & EUR 14.65 per ounce
07 Nov: USD 17.01, GBP 12.95 & EUR 14.70 per ounce
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