The government has published a report on Household debt. The report includes the latest statistics and forecasts for household debt in the UK and international comparisons. There is also a guide explaining how to understand and interpret household debt statistics and a summary of research looking at its effects on the economy. In the report household debt is defined as money borrowed by individuals, usually from banks or financial institutions. This includes mortgages, personal loans, student loans and credit card balances.
OECD data on international comparisons of household debt as a percentage of household disposable income show that the UK is above some countries like the US, France and Germany, but well below other countries like Australia, Norway, the Netherlands and Denmark.
The downsides to household debt are well known and include over-indebted households cutting back on their spending on other things, thus reducing economic activity. In addition, there could be problems in the banking system when loan defaults rise. Research from the UK and internationally has shown that large increases in household debt prior to recessions make those recessions worse and inhibits the following recovery.Household debt, however, does provide benefits to an economy and individuals. It allows people to buy things, like a house, that they would not be able to pay for in one go, raising their standard of living. In other words, it allows people to smooth their consumption over time, including during periods when their incomes temporarily fall. This can provide stability to the economy.