Debt fears may grow as recession continues

Britain endured a third successive quarter of economic contraction as the recession continued, the Office for National Statistics has said.

Its initial estimate for the three months to June was that Gross Domestic Product shrank by 0.7 per cent, with production, construction and services all seeing falls in output.

Production was down by 1.3 per cent, services by 0.1 per cent (having risen in the first quarter) and construction by 5.2 per cent.

Although it was expected Britain would still be in recession, the contraction was larger than many anticipated and the extra bank holiday for the Jubilee combined with the wet early summer weather may have taken its toll.

But whatever the causes, the fact Britain is still in recession is something that will prompt great concern for those struggling to make ends meet.

Which? executive director Richard Lloyd said the latest figures are "shocking" and will leave many people financially vulnerable.

He added: "Our consumer report found Britons are among the most economically vulnerable consumers in Europe, with people's ability to save at rock bottom and personal debt levels sky high.

"Alarming numbers of people say they are forced to take on new forms of debt just to make ends meet and many more say they would not cope with unexpected shocks to their incomes or household bills." 

Those who find they are in such deep trouble may be tempted to bury their heads in the sand, but taking good advice and acting on it to tackle debt head on is the most effective way to get finances back under control.

Evidence that matters are getting worse for many people was provided recently by the Alliance Trust's UK Financial Reality Index.

Its reading for the second quarter was just 61.3 – well below the 100 that denotes normal conditions.

The index fell in respect of household finances and wealth, with the only bright spot being a slight rise in the economic outlook due to employment levels rising.

By James Francis