The Bank of England, yesterday increased interest rates to their highest level for 5 years. Interest rates now stand at 5.75%, which represents a 1.2% increase since last August.
The Bank cited underlying inflationary pressures in the economy. In particular, they pointed to the pricing power of companies and the growth in borrowing and broad money. Although, CPI is still within the government’s target of 2% +/-1, the more reliable RPI (which includes housing costs) is just below 4%
As interest rates rise, yet again, there was evidence that UK consumers are facing record levels of personal debt. The level of personal debt in the UK now stands at £1.33 trillion. This equates to an average of £54,000 per person. Furthermore this debt is not equally spread out. Levels of debt tend to be much higher amongst the younger generation, who struggle to get on the property ladder.
Therefore, the effect of this is that the increase in interest rates will have a more than proportional effect on young borrowers.
The ratio of house hold debt to personal income has increased from 50% in the 1970s to about 140% now. A significant reason for this is the rise in unsecured loans. Banks are increasingly generous in giving unsecured loans with less credit checks.
1 comment so far ↓
The banks know that the more money they lend the more charges they can make when you are struggling. I have been so broke that I begged the banks to help but they couldnt get their fat fingers into my bank account quick enough.
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