Debt levels increase in 2008

A new report has shown the UK is experiencing worsening financial problems, with debt and inflation rising.

The latest Financial Reality Index from the Alliance Trust Research Centre found consumer finances hit the “worst ever level” for 11 years in the first half of 2008.

The credit crunch has begun to affect households, which are now cutting spending to avoid debt, which has increased, according to the index.

Families’ income is not keeping step with outgoings such as mortgage repayments and council tax bills, causing financial problems.

Furthermore, household spending is predicted to continue to slow, according to head of the Alliance Trust Research Centre, Shona Dobbie.

“The labour market has remained fairly strong up until now, but we predict that this will soften over the second half of 2008 as the number of people claiming unemployment benefit continues to rise,” Ms Dobbie said.

The Financial Reality Index is based on a number of economic variables including inflation, unemployment rates and tax, the Alliance Trust has said.

By Morwenna Kearns