New figures from the Bank of England have shown that household debts, excluding mortgages, have increased by over £5 billion in the past year.
The rise is the largest since the recession and means that UK households now have £208 billion of outstanding debts on credit cards, overdrafts and bank loans.
The average UK household now has debt, again excluding mortgages, of £9,070 and the level is rising, just last month debts increased by £629 million.
Rising living costs
Economic experts believe that as prices rise faster than wage increases some people are having to borrow just to meet the day to day cost of living.
Both measures of inflation are currently running above 5%, way ahead of the Bank of England’s target figure and significantly above the rate at which wages are rising. Figures from the supermarket giant, Asda, have shown that due to rises in the cost of food, petrol and energy the spending power of the average family has fallen by £730 over the past year.
Howard Archer, chief UK and European economist at Global Insight, said: “The rise in unsecured consumer credit suggests increased ‘stressed borrowing’ is occurring, with more people having to borrow to help finance their spending.”
Mr Archer continued: “This is a consequence of the extended squeeze on their purchasing power coming from elevated inflation, low wage growth and tighter fiscal policy. In addition, job losses are rising.”
The ONS have also shown that the poor have also been disproportionately affected by the increase in VAT earlier this year. The poorest 20% of households spend 10% of their disposable income on VAT, for the richest 20% this figure is just 5.3%.
David Breger of chartered accountants HW Fisher & Company said: “This reinforces what is widely perceived to be the fundamental inequality at the heart of VAT.”
The Office for Budget Responsibility (OBR) has released figures showing that total household debt in the UK, including mortgages, will rise from £1.6 trillion in 2011 to £2.1 trillion in 2015.
By 2015 the average person in the UK will have debt equal to 175% of their annual salary, up from 160% today.