Following recent findings from MoneyExpert.com that seven per cent of people in the UK are “very concerned” about debt, a new report from Grant Thornton has justified anxieties, revealing that consumer debt for 2007 has actually exceeded the nation’s annual income for the first time ever.
The consultancy firm has found that UK consumer debt - comprising mortgages, loans and credit cards - stands at £1.35 trillion, while gross domestic product (GDP) for 2007 is expected to be just £1.33 trillion.
Chief economist at Grant Thornton, Stephen Gifford, confirmed: "We can no longer generate enough yearly GDP to cover the amount we owe and need next year’s income to cover this year’s debts."
The company predicts that it will take until January 5, 2008, to accrue enough earnings to cover debts, while 10 years ago consumer debt was cancelled out by August 23.
According to Mr Gifford, interest rates have played a part in the problem. "The level of debt has so far not caused much of a problem for the UK economy”.
"Interest rates have been historically low and the UK economy has been ticking along healthily. But with five interest rate rises in the past year the picture is changing and becoming a burden for families and households," he said.
‘Buy now, pay later’ schemes have also been blamed for increased levels of consumer debt and the company cites relatively cheap borrowing costs as a significant factor in the country’s credit crisis.
"Fortunately, most consumer debt is secured and can be repaid over several years, otherwise we would be technically bankrupt," added Mr Gifford.
Commenting on Grant Thornton’s findings, marketing director at Picture Financial, Julia Dallimore, said that although UK credit levels appear high, much of the recorded figure consists of mortgages and other secured lending, and that many people use credit in a responsible way.
However, in light of the interest rate rises, she encourages borrowers to rethink credit arrangements, and emphasises the importance of getting “a clear picture of their month by month finances to ensure they [consumers] can comfortably afford their repayments.”
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