Banking News Can You Feel It Credit Crisis Begins To Squeeze 1273

Can you feel it? Credit crisis begins to squeeze

19 March 2008 / by Rebecca Sargent
Recent figures from the Office for National Statistics have shown that the credit crisis is beginning to take its toll. Inflation is at its highest level since May 2007, according to the statistics, the Consumer Prices Index rose to 2.5 per cent in February, up from 2.2 per cent in January.

The rise demonstrates how the credit crisis is beginning to take effect; energy costs have risen so rapidly that they are affecting everybody no matter what their income. The average household’s annual energy bill has risen to over £1000 and the price of bread, cheese and milk has risen by 17.6 per cent in a year.

As a result of the rise in inflation, the Bank of England’s Monetary Policy Committee (MPC) has found itself in a quandary. The MPC decided to keep the base rate at 5.25 per cent this month, over fears that a drop would cause inflation to rise. However, despite the MPC’s efforts, the Consumer Price Index has risen considerably; the main reason for this was the rise in gas and electricity prices.

Despite the recent cuts, the bank of England’s base rate continues to remain well above those in America. Last night the Federal Reserve cut its key rate by .75 percentage points down to 2.25 per cent as a result of the increasingly global credit crunch.

In addition to increased household bills, mortgage repayments and debt, the UK is also suffering as the pound joins the dollar in losing value at a rapid speed. Earlier this week the pound dropped to an all time low of £0.79 against the Euro.

As a result of increased oil and food prices and a weaker pound, analysts are predicting the rate of inflation will rise to 3 per cent by the summer. All these price increases have resulted in more consumers feeling the pressure and finally confronting their debts. According to the Citizens Advice Bureau more and more people are seeking debt related advice.

Malcolm Hurlston, chairman of the Consumer Credit Counselling Service, highlights the importance of confronting debts and seeking advice: “It is vitally important, as the squeeze on household finances continues, that borrowers seek help as soon as they get into difficulty. When finances come under pressure, it is easy to bury your head or prioritise the wrong payments.”

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Written by Editorial Team