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Consumers 'Face Rising Debt Service Costs'

Aug 18, 2007
Britons are paying back a record amount of debt, according to a new study.

Figures released by PricewaterhouseCoopers (PwC) have indicated that for every pound households earn, some 19 pence is going towards repaying debts accrued on personal loans, credit cards and mortgages. Topping the previous height of 18 pence noted during the third quarter of 1990, the study indicated that a record number of consumers have seen their financial stature squeezed.

John Hawksworth, head of macroeconomics for PwC, said: "Many households have faced a squeeze on their finances due to a combination of modest earnings growth, rising utility bills, higher petrol prices and increased debt repayment costs. As a result, the amount of money left over to spend on other goods and services has grown a lot more slowly than headline indicators like gross domestic product (GDP) might suggest."

The macroeconomics expert also claimed: "The relatively rapid growth of debt service costs throughout the whole period and of utility bills during the past three years are major factors tending to squeeze household discretionary spending power." Mr Hawksworth added: "Looking ahead, we expect rising debt service costs to contribute to slower consumer spending growth over the next two to three years."

Figures from the accountancy firm also indicated that more households have been taking out loans to help reduce the effects of a slowdown in pay rate growth. Since 1995, household spending is reported to have risen by 5.5 per cent year-on-year. However, disposable income had increased by only by 4.9 per cent. The proportion of income left after paying debts and household bills was also reported to have fallen. Between 2004 and 2006 this figure stood at 3.1 per cent, compared to a year-on-year increase of 3.9 per cent noted from 1997 to 2006.

PwC also claimed that GDP is set to fall to 2.75 per cent over the course of this year before decreasing to 2.5 per cent in the early stages of 2008. Meanwhile, consumer inflation is expected to decrease towards the Bank of England's two per cent target of by next year as the cost of household bills drops. Despite this, the accountancy company claimed that the Bank's monetary policy committee is still to increase the base rate to six per cent before the end of 2007.

However, a recent study conducted by Sainsbury's Bank has indicated that 2.8 million Britons are purposely ignoring their financial situation. With some 11 per cent said to have left a credit card or bank statement unopened, these consumers could be developing further problems in making loan repayments.

According to figures released by Credit Action, Britain's total personal debt stood at 1,325 billion pounds as of the end of April - a rise of some 10.4 per cent over the previous 12-month period. With the country's personal debt said to be increasing by 1 million pounds every four minutes, the financial charity reported that some 330 people every day declare themselves either insolvent or bankrupt as they struggle to make repayments on their loans and credit cards.
About the Author
Abbi Rouse writes for AllAboutLoans.co.uk, an online loans comparison site, visit us today for information on all loan topics including cheap loans applications and online loans sourcing from all leading UK providers. Our Site: http://news.allaboutloans.co.uk/
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