Does this look like a healthy state of affairs? This chart records the UK's balance of trade in goods and services. During the last three months, our external trade deficit was over ₤14 billion. In fact, our trade balance has been deteriorating for about ten years. Quarter after quarter, imports have outpaced exports, increasing our external deficit.
What is driving this deficit? Household consumption; as credit has become easier, UK consumers have borrowed and spent, with a large part of that extra spending going on imports. Credit cards, unsecured loans, overdrafts and mortage equity withdrawal have all helped drive up consumption and the trade deficit.
Can we continue pushing up our external deficit quarter after quarter? I don't think so, somehow. UK consumers are the most heavily indebted in Europe. Banks are getting increasingly nervous and have begun to tighten their lending standards.
It is time to start paying down that debt, folks.