2014 could be a good year for many in the UK. The long shadow of the Credit Crunch, Labour’s spectacular boom/bust of the last decade, is receding at last. 2014 could see more people getting work, some rises in wages and even growth in living standards after a long period of squeeze.
The economy ends 2013 in much better shape than in recent years. People are more optimistic, with businesses now more inclined to invest in future products and capacity. The rate of new job creation has been good, and now more of those jobs are being taken by unemployed people already settled here rather than by recent arrivals.
Some already complain that we are sowing the seeds of the next bust. They complain that people are borrowing too much money. As the numbers living here expands, and as the numbers in work increases, so you would expect total private sector borrowing to rise. There is nothing wrong with people borrowing against their incomes to buy a home or even a car. They need them to lead their lives and cannot afford the full cost or anything like it all in one go. It’s what has driven living standards higher in past decades, and will do so again.
Of course individuals, companies and the state have to be careful not to overdo the borrowing. Businesses have overall cut their borrowings substantially and generated more cash in recent years. They can afford to borrow more if good investments present themselves. Many individuals have cut their credit card and other expensive borrowing. As home ownership expands again we should expect to see debt levels overall rise. Individuals and their mortgage advisers need to make sure they borrow amounts they can afford to service when interest rates rise again, as they will one day.
The state is the most exposed, as the state has built up its debt much more quickly in recent years. It has also benefitted greatly from buying in its own debt, keeping the interest charges low. This has come to an end and is unlikely to be revived, so it is even more important now that the state cuts its deficit and gets its debt to affordable levels.
I wish you all a happy and prosperous new year.