Rising inflation and the debt burden
The Office of National Statistics (ONS) has just published the latest inflation figures for the UK. The data shows that the Consumer Price Index unexpectedly rose to 4.5% in April, compared with 4% in March and 4.4% in February. People who are already finding it difficult to manage their debts may increasingly start looking at individual voluntary arrangements (IVAs) as a way of dealing with their inability to meet their day-to-day living expenses.
The fall in inflation witnessed in March may have simply been a temporary anomaly, according to analysts. If that’s the case, that’s bad news for people with debts to pay. The ONS attributed the increase in the Consumer Price Index to rising utility costs combined with increases to the cost of tobacco, alcohol and motoring (even though fuel duty was cut in the Budget).
In a climate where incomes have stopped increasing and purchasing power is at its lowest point for decades, consumers are likely to notice the effects of rising inflation in various ways. Some people will have to cope with less disposable income, but those who are already in debt may well find themselves completely overextended. That could well add up to an increase in the number of people looking at IVAs as a solution.
On average, individuals have faced a 54 increase in monthly outgoings, and around one fifth of consumers don’t think they would be able to cope with any further increase in the cost of living.
The Consumer Price Index is likely to reach 5% before falling back later this year, according to the Bank of England. The tumbling price of oil means the inflation rate will drop sooner rather than later, some analysts have suggested. Whilst there is definitely no need to panic, the next few months may be fairly unpleasant for a large number of people. There are also doubts about the scope for economic growth when consumers’ belts are being tightened to such uncomfortable levels.
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