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Abstract
The United Kingdom’s key imbalances over the past decade originate in low saving. Growth has been reliant on private and public consumption financed by high domestic and external borrowing. Public finances entered the crisis with little policy space and are now left in a much weakened state. Household saving fell to unsustainably low levels alongside an overheated housing market. Against a backdrop of low interest rates globally, financial sector excesses contributed to a buildup of imbalances and stability risks. Since the financial crisis, repair of both public sector and household balance sheets has been under way, notably through increased saving. Budgetary consolidation efforts will need to be sustained over the medium term and the performance of the new fiscal framework closely monitored. The rebound in household saving needs to be maintained. Securing strong and sustained growth will therefore require a rebalancing of demand toward net exports and investment and away from consumption. Ongoing financial reform is also crucial to safeguard stability—a key priority given the United Kingdom’s role as a global financial center.
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