ABSTRACT
In the decade between 1997 and 2007, the UK enjoyed strong and stable growth. Gross domestic product (GDP) grew by an average of 3.2% per year, peaking at 4.5% in 2000. Unemployment fell from its peak of 10.4% in 1993 to 5.3% in 2007. The same year, government debt was 44.5% of GDP and the deficit was 2.7% of GDP. However, this strong growth performance masked emerging imbalances, in particular: (i) greater-than-average reliance on household consumption growth to propel GDP, leading to an increasing current account deficit; 1 (ii) a large increase in household debt linked to the housing boom and falling saving rate; and (iii) a fiscal position which, although within the limits for deficit and debt set in the Stability and Growth Pact, failed to take into account the large cyclical revenues which were flattering the overall balance.
