UK debt: Britons must face up to vicious circle

12th May 2006
By Karina Purang

The Bank of England governor has spoken of the perils of escalating personal debt.

The governor of the Bank of England has given a stern warning on debt, as data from the National Debt Line highlights that the number of households struggling with debt repayments is mounting. Worryingly, the crisis could become worse: unemployment is rising and an increase in the cost of borrowing risks leaving many consumers in acute difficulties.

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The governor of Bank of England, Mervyn King, has issued a clear warning about spiraling debt levels. The warning came after figures from the National Debt Line highlighted that debt problems are mounting at a rapid pace, forcing the governor to state that 'a potentially large social problem is materializing'. Indeed, the number of individuals calling the organization during the period January to April 2006 exceeded 105,000, representing an increase of more than 30% on last year.

The UK's 'borrow and spend' culture has meant that many households have been borrowing too close to their comfort zone and many are now increasingly weighed down by personal debt. Thousands of pensioners are under huge debt pressure with many owing more than GBP50,000 according to a report from NancollasGreer, a debt management company.

And debt problems are becoming of a concern for young people too. For instance, a recent survey by Alliance & Leicester found out that those in their 20s typically have GBP8,000 in unsecured debt. Unsurprisingly, consumers' difficulties in meeting debt repayments have started to feed through their secured debt commitments, as data shows that mortgage arrears are steadily increasing.

British households are now increasingly vulnerable to economic upsets and macroeconomic indicators pinpoint that overindebted consumers may have to face the music sooner rather than later.

Indeed, unemployment is rising and there are expectations that the Bank of England will increase the base rate by the end of the year to control inflationary pressures. The Banking Code was recently strengthened as lenders fear that consumers are taking on too much debt. While this will help to keep further borrowing in check, it may be a case of 'too little too late' for those currently saddled with the financial consequences of a 'live for the day' society.
'End Intelliext

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