Grappling with new normal as debt levels skyrocket, stalling return to average interest rates

Quick Take

A closer look at the question, “When are interest rates returning to normal?” reveals an intriguing aspect of economic dynamics. The Bank of England (BOE) still hovers approximately 50 basis points (bps) from the average interest rate levels since 1970. However, the intervening years have witnessed stark shifts in the economic landscape.

According to data by Trading Economics, in 1970, government debt constituted 15% of GDP, household debt was 30%, and public sector net debt stood at 50%. Fast forward to 2023, and these figures have burgeoned considerably. Government debt as a percentage of GDP has risen sharply to 200%. The household debt to GDP ratio has more than doubled, reaching 80%. Meanwhile, public sector net debt to GDP – a critical indicator of a nation’s fiscal health – has also doubled, standing at 100%.

This comparative analysis points towards a deep-seated shift in the economic structure over the years. The stark rise in debt levels across various sectors underscores the complexity of returning to ‘normal’ interest rates, especially in a more indebted economy.

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