Interest rate rise would hit millions in UK
The Bank of England’s warning that it plans to raise interest rates from as early as May will hit millions of low-income families who have only survived financially for a decade by using cheap credit.
The Resolution Foundation said almost half of low-income families were in debt distress before Thread needle Street said last week that it needed to increase the base rate at an accelerated pace over the next two years, The Guardian wrote.
Bank of England’s Governor Mark Carney said the strength of the economy warranted higher borrowing costs. He cited rising average wages and resilient GDP growth as reasons to begin pushing interest rates from the historically low level of 0.5 percent.
But a study by the foundation showed the proportion of households in some form of debt distress rose to 45 percent among the poorest fifth of working age households, with more than a third experiencing difficulty in paying for accommodation and one in six in arrears on either their mortgage or consumer debts.
Households headed by someone aged 25-34 spent nearly £1 in every £5 of their pre-tax income on debt repayments in 2017, compared with 20p for households aged 65 and over.
Levels of consumer credit have soared in recent years to more than £200 billion, prompting debt charities to warn that lenders are repeating the mistakes made in the early part of the century, when households on low incomes were sold loans they could not repay.
Matt Whittaker, the chief economist at the Resolution Foundation, said most of the increase in consumer debt since 2014 was among middle and higher income groups and they could afford to absorb an increase in interest rates.