Vania Esady and Stephen Burgess
A summary measure for UK households’ resilience
High levels of household debt have been shown to amplify recessions. For example, in the global financial crisis (GFC), UK households with more debt tended to cut back their spending disproportionately, amplifying aggregate demand effects and potentially making the recession worse. High levels of household (and corporate) debt can pose risks to the UK financial system through two main channels: lender resilience and borrower resilience. However, monitoring households’ resilience to future shocks is not an easy task. In this post we construct some new summary measures of borrower resilience. We show that increases in debt-servicing costs or in the flow of credit to households could make households less resilient overall.
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