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Servicing big debt eats into more household budgets

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04/07/2007

Paying off household debt has reached a record level and is stretching many household budgets to the limit of their capacity, according to accountancy firm Pricewaterhouse Coopers (PwC).

The cost of debt now takes up 19% of the average household’s disposable income, exceeding the previously record high level of 18% in late 1990.

With a hike in interest rates expected this week, PwC reckons consumer spending will slow down. “Many households have faced a squeeze on their finances due to a combination of modest earnings growth, rising utility bills, higher petrol prices and increased debt,” said John Hawksworth, head of macroeconomics at PwC.

He continued: “Looking ahead, we expect rising debt service costs to contribute to slower growth over the next two to three years.”

PwC has calculated that the income of households remaining after paying off debts and household bills rose by 3.1% a year between 2004 and 2006, although the rise in gross incomes per annum was 5.2%.

PwC also calculates that this will mean the UK’s economic growth rate will fall slightly in the year ahead, from 2.75% this year to 2.5% in 2008.

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