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Britain’s cumulative personal debt has exceeded the income generated by the economy for the second consecutive year it has been announced.

According to accountants Grant Thornton, the total amount owed by consumers on credit cards, loans and mortgages hit £1.444 trillion for the 12 months to June. However, in the same period the country’s gross domestic product (GDP) stood at a mere £1.41 trillion. Despite the global downturn flattening the growth of personal debt and UK GDP over the past few quarters, debt levels continue to grow at a faster rate than the income the
UK generates.

Although there is no cause for panic as personal debt is covered by the UK housing stock, the figures clearly illustrate the continuing problem of growing personal debt levels in the
UK.

Experts predict that soaring consumer debt levels could fuel a huge rise in demand for debt consolidation loans and Individual Voluntary Arrangements (IVAs) both this year and in 2009.

The data suggests that the credit crunch has yet to halt the UK’s indulgence in relatively cheap borrowing.

Despite the global downturn flattening the growth of personal debt and UK GDP over the past few quarters, debt levels continue to grow at a faster rate than the income the UK generates.

If the property market and economy continue to weaken, the current levels of personal debt will become unsustainable and there will be a marked increase in personal insolvencies. Things are unlikely to get better in the short term. The credit crunch and recent rise in the number of unemployed means the number of insolvencies will continue to rise.

High levels of personal debt have driven consumer spending in recent years, benefiting the economy, but that will inevitably change.

A good part of the economy has been fuelled by the ability to borrow against increasing house values, but that will become harder to do and consumer spending power will be more restricted.

This entry was posted on Monday, August 25th, 2008 at 4:16 pm and is filed under Personal Loans. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.