One in four adults are either in financial difficulty or would be if they had a financial shock, such as losing their job, the city watchdog also found.

Just over four million adults missed payments on bills or loans in at least three of the six months before the FCA survey, which was carried out between February and June this year. This is an increase from 3.8 million in 2020 during the first covid lockdowns.

The data comes at a time when inflation has hit 10.1% for September and the cost of living is still rising. Since the survey was carried out, prices have risen significantly suggesting that the actual problem could be far worse.

The watchdog has released the data as part of its Financial Lives survey, which will be published in full next year.

Postcode lottery for people struggling with bills

There are big differences across the country when it comes to how people are coping with the rising cost of living.

Those in the most deprived areas of the UK are almost seven times as likely to be in financial difficulty compared to those in the least.

In the North East, 12% of people are in financial difficulty, followed by 10% in the North West. Yet the figure falls to 6% for those in the South East and South West of the country.

Lenders reminded to help struggling customers

The FCA said earlier this year lenders were reminded how to support customers who are in financial difficulty and it took action with 30 firms to make sure customers were getting the help they needed.

One area which has come under scrutiny this year is buy now, pay later providers. Retailers have previously predicted that one in four online purchases will be made with this payment method by the end of the year.

The rise in BNPL purchases has been put down to the cost of living crisis, which has seen more people turning to debt to pay for everyday items.

But this area of the market is not currently regulated leaving little protection for consumers. Despite this, the FCA says it has “successfully engaged with providers to improve customers’ terms and conditions”.

The watchdog also said it has warned insurers to protect their customers from paying for add-ons they don’t need and from unfair penalties.

Sheldon Mills, executive director for consumer and competition, said: “If you are facing financial difficulty, you don’t need to struggle alone. There is free debt advice available, and we have told firms that they must work with their customers to solve any problems with payment.

“The FCA continues to remind those in financial difficulty to contact their provider in the first instance to discuss their options, to shop around to find the best deal, and to use the MoneyHelper service for tips on living on a squeezed income and to find free, expert debt advice.”

Independent financial charities and organisations including StepChange, National Debtline, and Citizens Advice can also provide free and confidential advice to those struggling with their finances.

‘Wages rising at half the rate of prices’

Sarah Coles, senior personal finance analyst for Hargreaves Lansdown, said: “Right now, wages are rising at roughly half the pace of prices, and in the case of the public sector, around a fifth of the pace.

“For those who rely on benefits, these have risen at around a third of the rate of inflation – and aren’t going to go up again until April. It’s hardly surprising that so many people on lower incomes are hitting a brick wall financially.

“But the impact is being felt right across the income spectrum. Average earners face the additional threats of much higher mortgage payments when they remortgage, and horrible energy bill hikes when the energy price guarantee comes to an end in April.”