A hike in interest rates will push thousands more Britons into bankruptcy, according to calculations from the government’s Insolvency Service.
The forecasts show an extra 18,000 people could be pushed into insolvency by 2020 if rates rise by one per cent, says accountancy firm Moore Stephens.
If rates rise, 275,900 people will be bankrupted by 2020, when the next general election is expected, according to Insolvency Service data. At current rates, 257,800 people would be forced into insolvency over the period.
The Bank of England (BoE) is expected by most economists to keep its main interest rate, the bank rate, steady at 0.25 per cent until the end of 2018 at least.
However, the Bank’s rate-setting Monetary Policy Committee (MPC) is set to come under increased pressure to raise rates as inflation breaks its two per cent target.
A slower pace for interest rate rises of only 0.5 per cent by 2020 would still cause another 9,700 insolvencies, Moore Stephens suggests.
Total individual insolvencies rose in 2016, but were at the second-lowest level in 11 years, according to the Insolvency Service’s figures.
The MPC cut rates in the aftermath of the EU referendum in an effort to boost the economy. Since then the economy has performed better than the Bank expected, prompting calls for the a normalisation of monetary policy.
The BoE must balance the effects of higher inflation with the effect of interest rates on the unemployment rate.
Last week the Bank’s governor Mark Carney said he expected inflation to rise above two per cent when February figures are reported. Consumer prices rose at an annual rate of 1.8 per cent in January.
Jeremy Willmont, head of restructuring and insolvency at Moore Stephens, says: “Interest rates can realistically only go one way in the mid to long term, and there’s a risk that a substantial number of people will suffer when they do increase.
“Consumers have been taking advantage of the low interest rates over the last decade or so, and lots will have borrowed beyond their means. If rates rise and they can’t make repayments, then borrowing and job-hunting become serious issues.