As the Bank of England struggles to get inflation back to down to 2% from its June level of 2.4%, the British are beginning to feel the weight of their own debts.
According to recent research by debt consultancy firm Thomas Charles, eight million Britons now have unsecured debts of more than £10,000. The proportion of British adults is 18% - almost one in five – and they also admit to be struggling to keep up with repayments. Debts mainly to blame are on credit cards and store cards. These have risen considerably in the last three months.
It seems that as mortgage payments have gone up as a result of increasing base rates, people have switched even more spending to their credit cards, but have not perhaps cut their spending as much as they should. Thus, their continued spending helps keep the level of inflation too high and the Bank’s Monetary Policy Committee (MPC) has to consider raising the base rate again.
Mercifully the MPC decided to hold the rate yesterday at 5.75%. Business leaders have warned that another rise will cause “serious economic damage†and would be a dangerous move for the housing market and related industries. Families are struggling with the increasing cost of living, as prices of food and fuel in particular keep on going up.
There is now a bigger discrepancy than ever between mortgage repayments and salaries, as house prices continue to rise, especially in London and the South East. Between April and June over 20,000 people filed for bankruptcy in Britain. In the first three months of 2007 the number of bankruptcies was 10% higher than the same period in 2006. The number of people prosecuted for defaulting on loans in the first half of this year was around 420,000 – 8% higher than the first half of 2006.
It is still widely predicted that the Bank will raise the base rate to 6% - probably as early as September.
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