Debt management may be needed as economic optimism comes with warning

More Britons may need debt management measures as a guardedly optimistic economic forecast has suggested there will still be difficulties ahead for many.

The Confederation of British Industry has said the UK economy will grow this year and next, but has trimmed its forecast for the extent of the increase from 1.8 per cent to 1.7 per cent this year and from 2.3 per cent to 2.2 per cent for 2012.

CBI director-general John Cridland said the recovery of the economy will be an uneven one as it is rebalanced and the government seeks to tackle the deficit.

Giving his overall assessment, he said: “Although there are a number of risks to the UK’s economic outlook, we continue to expect that the recovery will make further headway this year and next, but the pace will be sluggish.

“The economy is battling headwinds of squeezed household budgets, weak wage growth, high inflation and necessary public spending cuts.”

Such a situation could mean many more people facing debt problems due to lost jobs, difficulty in finding new or better-paid work, struggling businesses and below-inflation pay settlements.

The latter factor is squeezing incomes because most pay settlements are below the rate at which prices are increasing, meaning they amount to cuts in real terms.

Research by Incomes Data Services for the three months to March has found that only 14 per cent of pay deals in that period were at four per cent or higher, this being the current rate of Consumer Price Index inflation.

At the same time, 11 per cent have had to ensure a pay freeze.

Posted by Paul Thacker