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Survey: UK debt situation worrying

A monthly survey conducted by Financial Information service provider Markit does not bode well for households in the UK. Not only did general macro-economic factors look weak, with disposable income sinking, expectations about future salaries depressed, job security caught in a rapid decline and households growing weary of major purchases. But household savings also fell at a sharp pace and a rising number of participants mentioned they had to resort to unsecured credit to cover their expenses. Overall, debt levels were on the rise for the sevenths month in a row – the longest consecutive period since 2008.

Understandably, Tim Moore, Senior Economist at Markit, found little to cheer about: “Household finances were once again gripped in a vice of subdued real incomes and heightened job insecurity in October“, Moore said, “Weak labour market conditions, combined with elevated inflationary pressures, have made rising debt and falling willingness-to-spend recurring themes this year. October was no exception, with these unwelcome trends especially prevalent among public sector employees and the lowest income groups. The overall balance of households expecting their finances to deteriorate in the year ahead was the largest for six months, which more than reversed the modest improvements seen in the summer.“

Despite these bleak developments, Craig Gedey of The Debt Advisory Line pointed out that the numbers merely came as a confirmation of what many in the debt management sector had long predicted: “We have always maintained that the relatively low levels of bankruptcies are by no means indicative of a healthy market. What we’re seeing, in fact, is consumers searching for and taking on insecure credits and reducing their spending to ward off an impending insolvency. Underneath the nervous, but relatively stable surface right now is a highly volatile debt situation which could tilt into a dangerous crisis any moment.“ Particularly troubling, according to Gedey, was the combination of high debt levels and a weak labour market, as it carried the additional risk of a sudden steep rise in unemployment and thus of more people defaulting on their debts: “If this happens, we’ll need to brace ourselves for even more worrying reports in the future“.

On the upside, however, Gedey stressed that it was by no means too late for incisive measures. Debt management plans and professional debt advice could make the situation of households in the UK manageable again – and thereby push the entire economy in the right direction.