UK debt levels damaging growth, warns BIS

Just two other advanced economies analysed by the financial watchdog are into the danger territory where "debt is bad for growth" for all three types of non-financial sector borrowing: government, household and corporate debt, said BIS economists.

"Debt is a two-edged sword. Used wisely and in moderation, it clearly improves welfare," wrote Stephen Cecchetti, head of the monetary and economic department at BIS, and his colleagues in a paper presented at the weekend's Jackson Hole summit. "But, when it is used imprudently and in excess, the result can be disaster."

Examining the point at which debt stops supporting growth and turns damaging, the research found that for government debt, the threshold is in the range of 80pc to 100pc of a country's gross domestic product (GDP). For corporate debt, the threshold is closer to 90pc of GDP, and for household debt, it is around 85pc of GDP.

The UK's debt exceeded these limits in all three areas, with a public sector debt at 89pc of GDP, corporate debt at 126pc and household debt at 106pc, according to the analysis of data for 2010.

Portugal and Canada were the only other nations out of 18 advanced economies studied to breach the thresholds for all three debt types, although other nations had more debt than the UK overall or in individual areas.

"A clear implication of these results is that the debt problems facing advanced economies are even worse than we thought," said the authors. "The only way out is to increase saving." However, the cost of ageing populations makes the challenge harder, they added.

By Emma Rowley taken from http://www.telegraph.co.uk/finance/economics/8731819/UK-debt-levels-damaging-growth-warns-BIS.html