The most recent statistics from Office for National Statistics (ONS) show that inflation has now surpassed a 40-year high of 9.4% and that 91% of adults in the UK reported a major increase in their cost of living between June and July 2022.
Huge increases in energy prices, the costs of consumer goods, supply chain bottlenecks, petrol prices skyrocketing and the impact of Russia’s invasion of Ukraine are to blame for rising inflation.
To curb this steep rise, the largest increase in interest rates in 27 years was brought about by the Bank of England (BoE), who recently increased it from 1.25% to 1.7% as the UK struggled to contain inflation, which is expected to reach above 10% before the end of the year.
The UK is also likely to enter a recession, with the economy contracting in the final quarter of the year, according to the UK Economic Growth Forecast which was also released by the BoE.
Rising costs are now putting businesses on the edge of a precipice and households under extreme pressure, further increasing their risk of defaulting on debt payments. Global debt collectors and debt recovery services are beginning to see first-hand the impact of inflation as they struggle to pay their debts.
Households feeling the impact of rising inflation and interest rates
Before the Bank of England’s interest rate announcement last week, consumer confidence was already at an all-time low as households faced soaring energy and food bills; with many now resorting to new lines of credit, falling further into arrears and seeing their savings wiped out.
Consumer confidence is likely to reach new lows next year when a recession is predicted to hit and as the BoE continues to grapple with rising inflation by increasing interest rates further. Unemployment is also anticipated to increase from 3.8% today to 5.5%, putting further pressure on incomes and standards of living.
Energy prices will further cause the economy to enter a five-quarter recession, with each quarter’s gross domestic product (GDP) declining by as much as 2.1% throughout 2023 with the BoE predicting there would be “no growth until beyond 2025”.
Mortgage holders and borrowers will also notice a change in debt payments as a result of rising interest rates caused by inflation, further straining household budgets in a way not seen for over 60 years.
When consumers are forced to stretch their budgets in poor economic conditions such as these, the risk of missed payments surge across the board for all types of debts. They are compelled to prioritise necessities while having less money left over for other bills, such as paying down existing credit cards or personal loan amounts.
Prospects of further higher rates of inflation and a recession on the cards mean more hardship to come in 2023 for over 1.5 million vulnerable households in the UK who still need to pay for their heating and other essentials, not to mention rising interest rates further reducing homeowners’ spending power and their ability to pay off debts.
Also, with reduced sales, skyrocketing energy prices and increased issues with staffing, businesses will be more vulnerable to insolvency if inflation persists and the economy continues to deteriorate.
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