"We see the potential for a significant slowdown, primarily for the housing market and the consumer.’ Says Danny Gabay, a director at London-based Fathom Financial Consulting.

"Such a slide in one of the developed world’s most robust economies would be bad news for Prime Minister-in-waiting Gordon Brown, the man who, as Chancellor of the Exchequer, has overseen much of Britain’s expansion. Yet it is in its 15th year of uninterrupted growth. And the UK in recent years has weaned itself from some of its dependence on the consumer, as business-investment growth has far outpaced consumption growth, says Ross Walker, the economist with the Royal Bank of Scotland in London. The International Monetary Fund earlier this year forecast the economy will grow by 2.9% this year – not sizzling, but still the fastest in the Group of Seven.

"Yet immigration, which has helped propel growth is set to slow. The government’s six-year spending spree is about to end, and cracks are showing in the property market.

"Debt has helped power the British economy’s ongoing success, and consumers have spent even as growth in their disposable income has stagnated. Debt, however, is at the heart of the present uncertainty. Personal debt topped $2.6 trillion in March. According to the Organization for Economic Cooperation and Development, UK household debt as a percentage of disposable income hit 159% in 2005 – the last year for which it is available – compared with 135% in the US.

"British banks lost a record $13.6 billion in bad consumer debt last year and are tightening their lending standards. Market leader Barclays PLC says it now declines half of all credit applicants. For the first time since the early 1990s, credit card spending last year fell, by 2.2% from the previous year’s level.

"Skyrocketing home prices have, in effect, force-fed the debt. Home prices have more than tripled over the past 15 years. In the first quarter of this year Britain’s house price to income ratio reached 6.1, the highest since records began in 1980 according to lender Nationwide Building Society."

"Major mortgage lenders have been doling out mortgages to up to six times a credit-worthy customer’s annual income. That’s comparable to US standards for high-quality borrowers. Still, with homeowners stretched, home repossessions in 2006 jumped 65% to hit a new high of 17,000. That’s still low by historical standards, but experts expect the number to rise.

"‘More and more people’s money is tied up in servicing mortgages,’ says Chris Tapp, associate director of Credit Action, a debt-education non-profit institution. ‘That means that people are having to borrow more and more for just ordinary living expenses.’

"From 2000 to 2006, boosts in public sector employment and wages growth to an inflated-adjusted 4.5%, more than double its long-run average. The government plans to halve that rate in coming years.

"But even as public-spending growth slows, taxes will remain high, further squeezing consumers. To finance its largess, in recent years the government has been ‘looking to raise any tax they could think of,’ says Michael Saunders, an economist with Citigroup in London ticking off rises in sales, property and energy taxes among those pinching consumers’ pocketbooks.

"A slowdown on immigration may also outweigh future growth. When the European Union expanded eastward in 2004, France, Germany and others made it difficult for the new European states to enter their labour markets. Britain, by contrast – along with Ireland and Sweden – opened its doors. A sudden influx of 600,000 immigrant workers from Eastern Europe, particularly from Poland, propped up growth. It also helped the housing market.

"The British government, however, has said that it won’t welcome immigrants from the newest EU members, Romania and Bulgaria, as easily. In recent quarters, national statistics showed work-force growth slowing.

"The British housing market may also have begun to sputter. Some surveys have shown a small downturn in the pace of home price appreciation, though rates remain in double digits.

"[The U.K. is faced] with the so-called ‘buy-to-let revolution.’ The phenomenon took off in 1996 with a law that made it easier to buy property to rent out. Since then, red-hot housing price gains, shaky government pension plans and the promise of a steady supply of tenants in the form of immigrants or young professionals priced out of the property markets have made buy-to-let landlords a fundamental feature of the housing market.

"Today buy-to-let owners make up 9% of mortgages outstanding by value. Last year they accounted for more than 11% of mortgage lending. If they start selling, it could trigger the long-feared price tumble in the broader British housing market.

"Now in parts of London’s gritty, immigrant-heavy east ‘To let’ signs are as common as Kebab shops, testament to an apartment glut. The number of calls to Britain’s largest debt-advice charity, the Consumer Credit Counseling Service, increased by nearly 50% from 2004. To almost 300,000 last year.

"Some of the recent spike in British personnel insolvencies may come from an April, 2004 change that shortened the amount of time people spend in bankruptcy from three years to one. But increasing numbers of struggling Britons still recoil from bankruptcy. They are opting instead for a Voluntary Individual Arrangement. Introduced in the 1980s, IVAs were originally designed for small business owners. The practice lets borrowers write off as much as 75% of their debt and pay back the rest over five years. They are attractive also because they stay behind the lace curtain, and aren’t public. Local newspapers routinely write news about bankruptcy filings.

"As debt levels have risen, so too has the popularity of IVAs. Last year they totalled more than 40% of individual insolvencies. Despite British banks’ increasing reluctance to sign off so much bad debt, analysts say they continue to see the IVA numbers continue rising. In the first quarter of this year, IVA totals in England and Wales rose almost 50% compared with the same period last year; bankruptcies rose 10%."

Our readers will note the aggressive recent stance of some key British banks, whereby IVA is feeding a serious factor of hype into British banking statistics and thence into the world financial picture that has escaped the attention of most analysts and commentators. This must be added to the basic picture in assessing the significance of the world-wide move of governments to "privatize" key government real estate.

Our financial masters are well advanced in preparing the next bailout of our high-flying world banking system.

– from Economic Reform, June 2007