It is the first time for households, companies and government to be in deficit at the same time since the 1980s. This could be a critical risk at the moment, as the date of Brexit is coming and the future of Britain is uncertain. Deficit is not an emergence when the economy is growing fast, because the deficit at this period can be paid back in the next period by the increased incomes generated by the fast expanding economy. However, when the economic growth is slow or even negative, the deficit becomes a serious issue.
When individuals are in deficit, they will borrow from their future incomes to spend; however, when the economy is growing slowly or even contracting, the future income growth is still possible but much harder, so individuals are more likely to bankrupt. For companies, the story is very similar that companies become harder to pay back their debts when the economy is growing slowly. Although some companies can operate on rollovers, not all companies are lucky enough to borrow from banks when the economy is not performing well. For the government, when the government is in deficit and the economy is not performing well, there are two strategies for the government - one is to keep borrowing and use expansionary fiscal policy to stimulate the economy, the other is to use contractionary fiscal policy to save spending and pay back debts. The first choice is risky because the effectiveness can be affected by the poor economic performance and the government deficit. The other choice is more conservative but may be bad for the economy since the economy will not gain any stimulation from the government side.
Overall, it seems that the current UK economy is very vulnerable towards economic risk.
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