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Brits Have 'Lost Track Of Financial Reality'

Nov 7, 2007
Britons are coming under increased financial pressure, a new study shows.

In research conducted by the Alliance Trust Research Centre, spending by British households fell slightly over the course of the third quarter of this year - the first decrease noted since early 2006 - with the between period witnessing a steady rise in expenditure. However, the research unit warned that unless people take steps to rein in their spending now, they could see their monetary situation falter even further. This in turn could well impact upon their ability to meet various demands for payments on areas such as mortgages, utility bills and personal loans.

Findings from Alliance Trust also indicated that in spite of the fall in spending during the third quarter, household finances were still under momentous stress. Between July and September, the firm's financial reality index was below the "critical 100 level" for the 13th consecutive quarter, as a result of pressures on consumers' budgets. Such difficulties were attributed to surging mortgage costs, high council taxes and a slowdown in the growth of real earnings.

Commenting on the research, Shona Dobbie, head of the Alliance Trust Research Centre, said: "UK households have been too short-sighted and have lost track of financial reality. We continue to remain puzzled that households" actual spending does not reflect the underlying fundamentals.

"Consumers remain reluctant, in the face of growing evidence, to pull back from their elongated spending binge. Low real earnings growth, higher mortgage repayments and hefty council taxes, to name just a handful of issues, all suggest that households should take a much needed reality check."

Meanwhile, Britons' net wealth was revealed to have suffered due to "jitters" in the stock market and the impact of debt accrued through loans, credit cards and other means weighing "heavily" upon families. However, the company asserted that Britain's general economic background "remained healthy" during the third quarter of this year as a result of low unemployment figures and strong financial growth.

Ms Dobbie added that despite the recent boost in the nation's financial wellbeing, this has mainly been to "underlying economic background conditions and is certainly no cause for complacency". She asserted that those consumers who have "routinely overstretched" their spending over the past 18 months will struggle to get their finances back on track. The Alliance Trust analyst also pointed out that forthcoming mortgage payment increases could overstretch homeowners' budgets even more, as rising debt levels and slowing growth in wealth levels could force more people to reduce their spending.

With more Britons set to see an increase in monetary pressures over the next few months, taking out a debt consolidation loan could be an advisable way for consumers to get help with money. By applying for such a loan, borrowers can consolidate numerous debts into a single repayment.

Such sentiments about a fall in households' financial standing were also revealed as Nationwide's Consumer Confidence Index decreased by two points over the course of August to 94. The drop in confidence was largely attributed to the public feeling the impact of the series of interest rate rises carried out by the Bank of England since August 2006, which in turn may well have impacted upon their ability to make personal loan repayments.
About the Author
Steve Smith writes for 1 Stop Finance Shop, where our visitors have access to all types of finance from payday loans and unsecured tenant loans, to self employed loans for homeowners.
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