Personal Finance Suffers as More Borrow to Pay Bills

As growing debt and rising prices take their toll on consumers, the monthly household finance index from Markit has registered its steepest decline since the recession. What’s causing people to be worse off?

Financial research firm Markit has found that compared to May, 36% of UK households considered themselves financially worse off in June. Only 6% saw an improvement in their personal finances.

Worryingly, the monthly household finance index’s leading measure fell to 35.1 – anything below 50 shows a decline in personal financial positions compared to the previous month. This is its lowest level since March, 2009, when the UK was still in the grip of recession.

So what’s causing the decline? Markit cites two main causes.

Firstly, rising inflation (currently at 4.5%) has led to increasing prices for consumer goods as well as a decline in the real value of incomes. Secondly – and partly in response – people have taken on more debt to keep up with their expenses.

Increasing debt and concerns about the impact of inflation have put further dampeners on consumers’ financial outlook. 90% of the 1,500 people surveyed by Markit expect their cost of living to rise over the coming year, while just 1% think it will fall.

This outlook is supported by research from the Office for Budget Responsibility (OBR). It estimates that UK households will have to borrow £500 billion – or £20,000 per family – over the next four years to maintain their standard of living.

According to the report, debt as a proportion of income will reach 175% by 2015, 15% more than current levels and higher than 2007’s 173% record.

Moneyhighstreet comments: “Managing debt has become a major concern for UK consumers. It’s a quick fix to take on more debt to keep up with interest and repayments, but this can quickly lead to insolvency.

“If your financial situation shows that you need debt help, there are ways available to manage your debt or minimise the impact of insolvency.

“We’ve partnered with 123 Debt Solutions to give our readers personal financial advice and debt help when they need it.”