WHILE the UK has (justifiably) been diverted by its own problems — an unstable Tory-DUP semi-government, botched Brexit negotiations and the murderous results of a near decade of austerity — the rest of the world has been contemplating the looming danger of another global financial crisis.

First, the prestigious Institute of International Finance in Washington released figures showing that global debt has reached a staggering $217 trillion (£168 trillion). That’s 327 per cent of world GDP and well up on where it was at the onset of the last financial crisis back in 2007. Decoded that means if official interest rates start to climb up from near zero than an awful lot of companies and governments are going to go bust.

This red light prompted a warning from the Bank for International Settlements. The BIS is effectively the clearing house for national central banks like our own Bank of England. It’s where countries settle accounts with each other. As a result, BIS takes a close interest in the value of money and investments. Last week it issued a dire prognostication about the state of the global financial system.

According to BIS, the global economy is now caught in a permanent trap of boom-bust financial cycles. In other words, we’ve solved nothing since the big Credit Crunch of 2008. In fact, BIS thinks matters are worse than ever with too much cheap credit sloshing around looking for an easy buck. The result of this speculation has been a massive bubble in property and share prices which is about to pop.

So what are the world’s top bankers doing about all this? Over the past couple of weeks, jittery central banks have being signalling like demented semaphores that now might be a good time to start raising interests back to something like normal. For a decade now they have kept rates low in order to keep rocky commercial banks solvent and to boost the confidence of the financial system. Central banks have even printed money (so-called Quantitative Easing) and used this cash to artificially stimulate the value of financial assets. The result is that world stock prices are at record levels — far higher than justified by the underlying level of profits.

Realising they have created a giant Ponzi scheme, where they have to keep on printing money to prop up share prices, our central bankers are running scared. But how to get off the financial merry-go-round before everything goes pop? The conventional answer is to “normalise” interest rates; i.e. raise them in small increments. The US started doing this in March and added another quarter point this month. The point of this slow normalisation is not to frighten the financial markets into a sudden sell-off of shares, provoking a global investment meltdown.

Here in the UK, the Bank of England is dithering over what to do. Last week, the latest internal minutes of the Bank’s Monetary Policy Committee (MPC) were published. These showed a major split in the body that sets UK interest rate levels. Three external members of the MPC — Ian McCafferty, Michael Saunders and Kristin Forbes — wanted to raise rates by a quarter point to 0.5 per cent. They were outvoted by four full-time Bank staffers, including Governor Mark Carney.

Such a split is unusual and shows the Bank is under pressure from the Fed to get in line. However, Carney is worried deeply about the negative impact of a hard Brexit both on the UK economy as a whole and on the City of London. Last week the Irish authorities were trumpeting their success in attracting banks from London to Dublin, in order to stay inside the EU. So Carney wants to keep rates low for as long as he can. But at the same time he has to watch the big red dial telling him the financial bubble could burst at any time.

So last week, Governor Carney tried a bit of bluffing. At a major conference of central bankers in Portugal, he tried being hawkish about future UK interest rate rise — it’s always in the future. However, this bit of theatricals instantly backfired. The markets chose to take Carney’s warning seriously, sending the pound higher. Oops! The very last thing the British economy needs at the moment is a higher pound, which will make exports more expensive just in time for a hard Brexit.

PLUS there’s the little matter of consumer debt. Last week we had news that household savings in Britain had hit a 50-year low. Instead, people are borrowing like there is no tomorrow. This collapse in savings is truly massive and sharp. In the first quarter of last year, the ratio of household savings to disposable income was 6.1 per cent (against an historical average of 9.2). But by the end of 2016, it had almost halved to 3.3 per cent. Here’s the killer: in the first three months of 2017, the savings ration collapsed to 1.7 per cent.

Why is this a problem? Basically it points to a surge in unsecured household borrowing as folk struggle to make ends meet in the face of a steep jump in inflation and flat earnings. People’s living standards are being eroded by austerity and they are desperately borrowing to keep family heads above water. Now factor in rising interest and mortgage rates and watch UK consumption collapse in the wake. That, in turn, will kill any semblance of economic growth. As it is, UK economic growth (just 0.2 per cent) is now running well behind the rest of the EU. Growth in the eurozone single currency bloc grew at three times the UK rate in the first quarter of 2017. Even sluggards France and Greece managed twice the UK figure.

Conclusion: the UK is between an economic rock and a hard place. This could be the trigger for another election. The opportunist DUP might have signed up to supporting a Tory budget but when push comes to shove they will not support tax rises. Governor Carney is demob happy at the Bank of England and won’t do Chancellor Hammond and favours.

With the Tory Government so vulnerable on the economic front, now is the time to exert maximum parliamentary force to get a soft Brexit — or even scupper EU withdrawal altogether. Unfortunately, Corbyn Labour is deeply conflicted on this issue. It is actually supporting the Tories to force through a hard Brexit (i.e. coming out of the single market) while claiming it wants to keep the benefits of staying in. But you can’t leave a club and expect to maintain all the membership rights.

In Scotland, the SNP government needs to seize the main chance rather than wait for the economic climate to get any colder. For starters, SNP ministers should set an emergency, expansionary budget “for growth and jobs” — funded by public borrowing. And to Hell with Treasury rules on spending and borrowing limits. SNP ministers need to stop being so legalistic. If standing up for Scotland means breaking Treasury rules, so be it. Let’s challenge the Scottish Secretary, David Mundell, to declare our SNP “budget for growth and jobs” ultra vires. After all, Mundell is hardly known for being decisive.