UK HOUSEHOLD REBALANCING

Rebalancing is the latest buzzword in macroeconomics. It is used as a catch-all term to describe the adjustments necessary to transition from the Great Recession to full economic recovery. Yet as the country forecasts show in this issue of the Review, achieving rebalancing with the current set of economic policies is very far from assured. Rebalancing is also at the centre of the UK government's strategy for growth. The Plan for Growth states that the economy became seriously unbalanced and heavily indebted, citing high house prices and low household savings. To put household imbalances into context it is useful to start with the international investment position (IIP). This is the difference between total external assets and liabilities and indicates overall national net indebtedness. While the UK is becoming increasingly indebted as a nation, whether this necessitates rebalancing depends on what the borrowed funds were used for.