Looking at what has happened to the UK banking sector there is a vicious cycle at work. Increasing mortgage defaults, causing cashflow problems for lenders. Lenders stop lending, resulting in a slowdown in the property market, house prices start falling.
This spreads to the wider economy, unemployment looks set to increase.
The question is what happens when higher energy bills start to kick in this Winter...
UK energy companies have increased their charges by approx 30 %. The majority of customers pay by direct debit. The amount of the direct debit is controlled by the energy companies. That is fine. Except for one thing what happens when a dirct debit is requested from an empty bank account...
Whatever the amount, 30 % of zero is still zero. Faced with bouncing direct debits, energy companies may experience cash flow problems. Has the management of UK energy companies been squeaky clean. Do they have sufficient cash reserves to pay their suppliers ?
It is one thing to increase energy bills, another thing to make money out of thin air... if the customer's bank account is empty, what are the companies going to do ? Disconnect the customers in the middle of Winter ? Do the energy companies have the resources to administer large numbers of accounts in arears ? Are they able to roll out a massive programme of installing pre-payment meters in several million households...
