Debt problems may last as economy tipped for long haul

Some people who are struggling with large debt levels may be hoping the solution arises from an improvement in the economic situation.

This notion …

Some people who are struggling with large debt levels may be hoping the solution arises from an improvement in the economic situation.

This notion would assume that as times get better, pay rates will rise above inflation and thus lead to incomes rising in real terms again, while more plentiful jobs could offer new opportunities to get well-paid roles.

If that were so, at least some people could find themselves able to get on top of their debts, although some may owe so much that a mere improvement in salary will not be enough.

But without any swift improvement, anyone who is struggling to pay back what they owe may be best to at swiftly now with a debt management plan or some other measure to ease their payments.

And according to Philip Coggan, Buttonwood columnist and Capital Markets editor at The Economist, Britons cannot hold out much hope of a quick economic recovery. Instead, he suggested, along, hard road still lies ahead.

Speaking in a Cambridge Judge Business School podcast, the expert predicted: "It is going to take five to ten years to sort out this mess and in that period, different countries will follow different routes to get rid of their debt."

He based this analysis on the aftermaths of past economic crises, such as the abandonment of the Gold Standard in the Great Depression years of the 1930s and the instability that followed the collapse of the Bretton Woods system in 1971 as examples of where a major economic shock caused many years of problems.

While the process of rebuilding the economy and monetary system after the credit crunch might take a few more years, some costs faced by consumers are rising.

The average expense of running a household was trimmed by lower mortgage payments due to the establishment of the 0.5 per cent Bank of England base rate in March 2009, but with other bills such as energy rising the annual figure rose 2.7 per cent in the past year from £9,149 last year to £9,393 according to a recent Halifax study, the highest since 2008.

Posted by Paul Thacker
 

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