Quarter of Brits with debt say they would struggle with interest rate hike

Jasper Jolly
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General Election - Economy
The Bank of England is not expected to raise rates until May (Source: Getty)

More than a quarter of British people with debt will struggle under the burden of rising costs when interest rates rise, according to a new survey to be published today.

Some 28 per cent of UK citizens in debt believe the effect of an hike will threaten their financial stability, the international savings survey by ING will show.

The rising tide of consumer credit has been a central concern of the Bank of England in the last two years, with 9.5 per cent annual growth in consumer credit to over £207bn in December.

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The UK is also among the European countries with the highest proportion of citizens with no savings whatsoever, slightly above the EU average.

One in eight British households has debt from a personal loan, while credit card debt is the most popular form of unsecured debt (excluding mortgages and car purchases), with 27 per cent.

Meanwhile, 13 per cent have an overdraft from their bank, seven per cent owe money to friends and family and eight per cent of households have student loan debt.

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James Knightley, chief international economist at ING, said: “The global economy is growing strongly and we suspect inflation pressures will gradually rise. The majority of central banks target inflation when setting interest rates so we believe households are right to start thinking how they will manage their finances in an environment where borrowing costs are higher."

However, central banks are aware of the threat, he added. The Bank of England has over the last two years tightened its macroprudential policies to try to stop banks from extending too much credit to vulnerable borrowers, at the same time as keeping extraordinarily loose monetary policy.

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