THE recovery will falter if the Government fails to deal with the rising level of household debt, a leading think-tank has warned.
Tony Dolphin, chief economist at the centre-left think tank the Institute for Public Policy Research, said there was danger better economic news could lead to “complacency” as he warned 2014 will mark the start of the next debt bubble.
With the next UK debt bubble expected to reach 160 per cent of household income by 2018, the recovery could prove “unsustainable and bittersweet” for millions of voters, Mr Dolphin said.
“There is a danger that a stronger economic recovery and good news on the jobs front will lead to complacency. Instead, we should be alarmed that growth is being driven by exactly the same mix of factors that contributed to the depth of the last recession.
“While there are external factors that have held back exports, the Government has in a sense run out of ideas for the economy and gone for the easy option of boosting the housing market.”
Recent good news on the economy, including unemployment falling to 7.4 per cent, its lowest level since early 2009, could be undermined if the Government does not do more to help boost industry, and he warned despite external factors such as the eurozone crisis, the country was still living beyond its means following the “Great Recession”, which started in the wake of the financial crisis in 2008.
He added: “In the global economy we are truly living beyond our means, and have been doing so for three decades.
“But poor numbers are nothing new. This year will be the 30th straight year in which the UK has recorded a deficit on its current account balance. This is a sign that there is a fundamental flaw in the UK’s economic model.
“A relatively low rate of investment is another key structural weakness of the UK, and it is a reflection of the persistent short-termism of business in the UK.”