Great Britain is at the forefront of increasing debt stress.
Hot on the heels of news that credit card delinquencies in the U.K. are increasing comes a report which shows personal insolvencies going through the roof. The number of people in England and Wales filing for insolvency in the second quarter hit its highest total since early 2012, when the British economy was teetering on the brink of recession. Non-seasonally adjusted data from the Insolvency Service showed 28,485 people registered as insolvent between April and June. As the chart shows, that equates to a 27% annualized rate which is the fastest percentage increase since the financial crisis of 2008 to 2009.
Clearly, U.K. households are under increasing financial pressure caused by the enormous debt binge exacerbated by the “free money” policy of Quantitative Easing. From 1987 until 2009, the 3-month interest rate in the U.K. averaged 7%. Then, from 2009 through to 2017 it averaged a measly 0.6%. From 2017, the 3-month rate has been trending higher. Yet it has only risen from 0.28% to 0.80% today, and already there are signs that debt deflation is upon us. With “Brexit-mageddon” a growing probability, market-set interest rates in Britain are at increasing risk of blowing-off to the upside. Can you imagine what that would do, not only to U.K. households but also to U.K. corporates that have leveraged up on debt? Whatever the ex-post specific reasons that people identify for the coming deflation, our long-term Elliott wave outlook for the U.K. stock market (i.e., economy) is clear. By the time it is all over, people may be looking at the crisis of 2008 to 2009 as having been mild in comparison.