UK growth at risk from current debt levels

The 'world's oldest international financial institution', the Bank for International Settlements (BIS), submitted a paper at the Jackson Hole summit which shows that the UK's level of debt is in danger of affecting economic growth.

Three kinds of non-financial debt were measured - public sector (or Government) debt, corporate debt and household debt. The BIS supports the belief that "beyond a certain level, debt is bad for growth". If debt passes a certain level of the gross domestic product (GDP) of a nation, it starts to become a problem, the report adds.

Looking at the recommended threshold for these three forms of non-financial debt, the BIS said that Government debt should be somewhere between 80% - 100% of GDP. The UK's Government debt is currently 89% of GDP.

However the corporate debt threshold is around 90% of GDP, but UK corporate debt is currently 126% of GDP - which the BIS claims could affect economic growth in the future. Finally, household debt is recommended to remain on or below 85% of GDP. The UK's current level of household debt is 106% of GDP.

Portugal and Canada are the only other advanced economies to breach the recommended thresholds for all three forms of debt. However, other nations do have higher levels of debt in other areas.

The BIS paper warns:

"Countries with high debt must act quickly and decisively to address their fiscal problems. The longer-term lesson is that, to build the fiscal buffer required to address extraordinary events, governments should keep debt well below the estimated thresholds."