Interest rate rise likely to increase bankruptcies, November 07 2006

It is widely expected that the Bank of England will raise interest rates to 5.0% on Thursday. It will be the second rise this year and will push the Bank of England base rate to it's highest for five years.

The anticipated rise comes amid accelerating UK economic growth and the significant increase in energy costs. With inflation above the government's target of 2%, economists believe it is almost certain that the increase will take place.

This rise will impact those living on the edge more significantly than others. As the repayments on mortgages, loans and credit cards are increased more consumers will find it difficult to meet their every day living needs. Inevitably, more people will be faced with the possibility of facing bankruptcy in order to resolve their financial difficulties.

Latest insolvency statistics showed an increase in the number of people opting for bankruptcy and individual voluntary arrangements. This increase is due to a number of factors. The main contributor being the amount of debt individuals have taken on board in recent years.

According to a recent survey, Britons are a nation responsible for a massive one third of all Europe's unsecured debt. Almost a third of Britain's unsecured debt is on credit cards. This represents the buy now pay later culture that many have embraced. Any interest rate rise will certainly make these credit cards, as well as loans, a more expensive spending tool.

Banks are becoming particularly worried by the aggressive marketing strategies of debt management companies. With more adverts such as "Reduce your debt by up to 75%. It won't cost you a penny!", more people revert to debt solutions. With solutions such as bankruptcy and IVA's the banks stand to make smaller profits.

Over the next twelve months it will certainly become apparent what affect the last increase and any near future increase will have on the bankruptcy statistics.