The major reason that deflation was never much of an economic threat in the West is that consumers are an impatient bunch. They want their mercantile fix now and will not wait weeks or months against the chance that the goodies they crave will be cheaper then. In many cases, reaching for the plastic has become a reflex for a large swathe of society as it lets them have just what they want as they want it. Other people find that they are struggling to make ends meet and these people have increasingly turned to borrowing via credit cards, store cards, personal loans and payday loans as a means to keep their heads above water.
Whilst the Bank of England interest rate is at a record low and mortgages have never been cheaper, the cost of personal finance remains significant with the average fee for borrowing via a UK credit card coming in at 21.6% (unsecured borrowing) and a personal loan (which usually requires security) starting at about 3.3% - payday loans (which are intended to be of very short duration) can have eye-watering interest rates in excess 0f 1200% APR. Average UK household debt (excluding mortgages) is approximately £13200 which is almost identical to the pre-financial crisis level.
Personal loans and unsecured borrowing is not really a problem for those in full time employment and with a decent income, but for people in more marginal circumstances, it could have devastating consequences should interest rates and/or the cost of living rise. Given the uncertainty of Brexit and its potential impact on jobs, inward investment, cost of living and the strength of Sterling, the Bank of England is set to require banks to make stronger provision for bad debts. Whilst the financial sector may write off bad debts, the individuals and businesses accruing them will be subject to a raft of measures from restructured payments (with incumbent bad credit scores) through to personal and company bankruptcies. The Bank of England is to outline its requirements this week.