Debt may persist despite PMI boost

Personal debt may remain a problem for many UK consumers, despite a new economic indicator casting doubt on the notion that Britain is heading back into recession.

The latest Markit/Chartered Institute for Personnel and Supply Purchasing Manager's Index (PMI) has given a reading of 52.1 for January, which does not just represent growth, but the fastest increase in output in ten months.

And the situation may be helped by falling costs and prices, with inflation easing.

The indicator rose from a reading of 49.7 in December, which means it has gone from contraction to expansion and is a possible indicator that the UK economy is doing better than thought and that gross domestic product (GDP) could be increasing again after shrinking by 0.2 per cent in the fourth quarter of 2011.

Such a view was expressed by Royal London Asset Management's senior economist Ian Kernohan.

He said: "PMIs tend to be a more reliable guide to economic activity than early estimates of GDP, which are often revised.  Today's PMI Manufacturing release shows some recovery in manufacturing output and is not consistent with the UK economy being in a double-dip recession. "

While this could help preserve thousands of jobs that would be lost if Britain slipped back into recession, many people will still be in debt and although still being in work will help, some might still need debt management plans to tackle their situation. 

Signs that people are handling their finances better may have been indicated by this week's Trends in Lending report by the Bank of England, which revealed that cases of personal insolvency have fallen.

By Joe White