UK growth forecasts have taken a hit due to an over-reliance on consumers spending money on credit.
According to a report in This Is Money, other factors are also at play, including a poor outlook for manufacturing and exportation. British firms are struggling to sell goods abroad due to the continual rise in the value of the pound.
But, it is the debt issue that will raise further questions about the UK government’s conviction in their policies. Are they a safe pair of hands when it comes to the economy?
The director-general of the British Chambers of Commerce expressed concerns in his statement to This Is Money. He said that “trade performance and current account balance are impacting our overall growth,”. He went on to state that expectations have moved from “an earlier prediction of growth in 2015 to an expected contraction.”
But what does this mean for the average UK citizen? In general terms, of course, when debt levels rise, it tends to be a good sign for the economy – from whatever side of the political fence you sit on. It’s a sign of confidence from consumers that they can afford to repay the money, and it’s a signal from the banks that they are lending again.
The problem is, economics is never quite so simple. Credit card debt is growing at the fastest rate it has for over ten years, which means a significant chunk of that money may not be as secure as is wished. And, of course, there are signs in other areas of the economy that people are using credit sources to survive, rather than a tool.
This time of year is also relevant to those figures, of course. With the average UK household spending £800 over the Christmas period, there are concerns that a lot of it will be through a credit card.
Not all debt is bad, of course. Mortgages like these help people on the housing ladder and even safe spending on credit cards has its benefits. Plus, there are services out there that can help people keep on top of their finances. According to Evolution Money debt consolidation loans can help people struggling with multiple debts. And, they will allow them to keep a better track of who they owe money to – and when they need to pay. But, if consumers are only making minimum payments each month, it’s not going to turn out well for them.
So, things may not be going as well in the UK as some might think. And, regarding wages, there are some alarming statistics, according to Resolution Foundation. They say the average salary will reach the same levels as it was before the global financial crisis. However, this is dependent on the interest rates staying at their long-term low, so it may be even longer. At the moment, there is still a £110 per week shortfall from what they would have been if the economy remained stable. And, of course, this may be one of the reasons people are using credit.
As ever with economics, it’s all guesswork, of course. But, it appears there are genuine fears that the current low wages and high debt levels are not a good mix.