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Consumer debt is at its highest since the mid-1980s

Credit cards have weakened our financial impulses. We can spend money now and pay it back later. It’s not really our money and it doesn’t have to be paid in full. It’s easy to fall into a routine of unnecessary spending and once you’re in, it’s hard to get out.

Each year we borrow more than we pay back. Consumer debt is mounting and is taking the UK’s economy back to the ‘Lawson boom’ era of the mid-1980s. Named after Chancellor of the Exchequer Nigel Lawson, the ‘Lawson boom’ saw the UK economy grow rapidly, yet unsustainably, resulting in inflation and finally recession in 1991.

Modern-day consumer debt is increasing at nearly 10% a year, while income remains at 3%. The increased borrowing rate is a result of greater residential investment and low repayment interest rates which keep consumer repayments manageable.

All the while, savings remain low as consumers make regular debt repayments which leave UK households with little disposable income. The UK economy relies on consumer savings and debt repayments as a means of investment and it’s this low level of savings and interest rates that have created a financial deficit which has caused UK inflation to reach its 2% target. This means the Bank of England is likely to raise interest rates to lessen the deficit and prevent further risks of inflation.

According to the Bank of England, the growth in unsecured borrowing slowed abruptly between February and March 2018. This is unsurprising as an interest rate hike is likely. As lending slowed, the UK’s economy expanded by 0.1% in the first quarter of 2018, the slowest since 2012.

Decreased borrowing and saving rates make the likelihood of increased interest rates greater which could put a strain on your financial stability and may affect your ability to meet repayment demands. If you’re concerned about your financial future, contact Sensible Debt Advice for support and advice. You can contact us here or call Clive on 01656 661426.

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