According to a new report, the majority of UK households will be able to weather projected increases in interest rates, while lower income households may struggle.
The Bank of England has indicated that an interest rate hike could happen as soon as May, while concurrently, the amount of consumer credit in the UK has risen at nearly 10% over the course of last year.
An increase in interest rates will push the amount necessary to service this new debt on items such as mortgages, car loans, credit cards an personal loans higher.
According to the report published by the Resolution foundation, the amount of household income that goes towards servicing debt is 7.7%, far lower than at the time of the last financial crisis where debt made up 12.3% of household income.
However, other factors are impacting upon household budgets, with spending increasing more than incomes grew in 2017. The spectre of inflation is also eating away at the value of household savings.
Matt Whittaker, chief economist at the Resolution Foundation asserts that:
"Rapidly rising consumer credit and the prospect of faster interest rate rises have led some to warn loudly of the imminent bursting of another credit bubble. But these fears appear to be overblown, with much of the recent credit growth being driven by higher income households who are much better placed to service their debts"
"While the evidence shows that on the whole Britain is well prepared for future interest rate rises, policy makers must have regard for those low income households who are already struggling to pay off their debts, and who could be really exposed if interest rates go up faster than currently expected."
The issue of lower income households being unable to pay their debts echoes previous financial crises and is a development that should be watched intently.
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