Higher Clothing Prices Plus Shopping Addictions Bad News for UK Debtors

Things continue to look rough in the United Kingdom today as a growing number of threats to consumer keep seeming to pull money directly from their wallets, say economic advisors. Word has come from the CEO of Net, Lord Wolfson of Aspley Guise, who is warning that prices for clothing are about to rise in 2011 because prices on cotton have gotten difficult for those who manufacture clothing to deal with without raising their prices. Wages are on the rise in many places around the world and this means higher prices for end level retail consumers, not only in the UK, but in other more economically advanced nations. Low rates of growth in sales are set to plague the economy in the coming years and this is another reason that retail leader Wolfson says this is the ‘new normal’ for the present economy.

What consumer advocates point out is that when combined with the rising problem of the so called shopping addictions, whereby UK consumers have huge credit or store card debts for their fashion fixes, the problem could spiral out of control. Many have not yet considered a debt management plan as a means to rid themselves of the debt and continue to spend faster than their income can keep up. This has led to many buying their way straight into the hole and advocates worry higher prices for basic clothing will only compound the negative effects of this trend.

With consumer credit access getting tighter by the year, many believe that this trend will hold and credit will continue to get more scarce in the consumer markets of the UK. Consumer growth in general will be much more controlled under the Government’s new measures intended to reduce debt and this means higher VAT along with a very subdued economic outlook wherein slow and steady growth is far more desirable to those in the Government than the previous boom and bust cycles for which most of the Western world has been known for decades.

Wolfson went on to say that he personally does not believe a double dip recession is on the way, but that consumer spending will be weak due to the cost of basic goods. He did say that he expects his own company, Next, to grow despite the overall tone of the economy in the next 3 to 5 years. Through a strategy of buying back their own shares, Next intends to raise investor profits and make each share earn more.

This thinking, Wolfson said, is not intended to be a pessimistic look at the economy but a realistic take from him on a new reality UK consumers face today where goods will cost more and credit will be less available. Personal finances advisors add in that credit could be scarce to none for those who have not handled debt over the course of the next year or so as debt continues to be seen as a major problem by many entities beyond the banking system.

UK Small Businesses Struggle to Get Loans

The press in the United Kingdom is now reporting that a flagship support scheme intended to support lending for small businesses saw a 60 percent decrease in lending over the last year. The figures come from the business department and regard the Enterprise Finance Guarantee scheme that was lending at a level of just over £250 million during the 1st Quarter of 2009, but in the 1st Quarter of 2010 that level was at less than £190 million. Even after this, levels dropped for 3 consecutive months to under £150 million. This has small business economic observers worried about the ability of these entities to survive in the present economy.

The purpose of this scheme, often known by the abbreviation EFG, is to give state backing for loans from banks that are designed to be used by small businesses. Part of the drop in lending is indeed natural, say observers, as businesses have chosen to pay off their debts rather than taking out new loans, but some financial experts say that a wide number of business owners hurried with their applications and did not properly present a sound case to banks as to why they should be eligible for EFG scheme loans.

According to some in the accounting field who are familiar with small business situations, a great deal of these businesses did not realize that the EFG was not actually designed to help them get emergency cash to stay afloat. Instead, the loans were intended to go to businesses that had taken the time and money to put together a solid business plan to present to lenders – otherwise, say experts, this finance would never be allowed for a hasty, scarcely detailed business plan.

This cumbersome application was somewhat overwhelming for many businesses which were low on the excess time needed to complete the paper work not to mention the extra funds required to execute the type of detailed statistics the lenders wanted for EFT backed loans. As far as the banks themselves go, they say that they are lending to more small companies and lending more money, as well, but that the demand has simply fallen off over the course of the last year.

The EFT backing scheme is designed to support loans between £1,000 and £1 million for companies that have a smaller yearly cash flow than £25 million. To date, over £1 billion such leans have been backed by the Government since the EFT was first put together and another £200 million has been added since the June Budget which was put together as part of an emergency plan to help the UK economy.

Economists are glad for these figures which were brought to light due to the efforts of a new UK bank called Aldermore which put in a freedom of information request to learn the statistics. The issues for most economic observers are that small companies often provide steady employment for an ever growing number of Britons and that when these companies cannot grow, the job market can shrink then affecting much of the economy.

Bank of England Looking to Cap Mortgage Lending

Recently, the Bank of England announced that it intends to put a cap on mortgage lending as a strategy to try to stave off a second credit crunch from occurring. According to reports, the Bank wants to cut back risky lending by having those looking to buy put down a deposit ranging between 10 and 25 percent of the total loan’s value in order to be eligible.

The Deputy Governor for the Bank, Charlie Bean, said that there will need to proper restrictions in place so that the size of the lending part of the economic stabilization package does not get out of hand. Other aspects of this package, which Bean announced during a meeting of central bankers which took place in the United States, include ensuring that capital is available to keep banks afloat and interest rates are set to workable levels.

What has alarmed some is that this is the first time in recent memory that a high ranking Government official has let word slip that the Bank may get directly involved in the setting of loan to value rations in the mortgage lending market. Nothing similar to this has been seen since the 80’s when the now discarded credit controls were introduced. During this time it was very tough for those who wanted a mortgage to be able to get one.

The new regulations administered by the Bank of England for the banking industry could start as soon as this fall and would be introduced by Chancellor George Osborne. While mortgage industry professionals feel this would be terrible news, it does prove that consumers facing credit problems due to unusually high debt will most likely want to enter a debt management plan as quickly as possible. The credit rating system is now getting harsher than ever according to this news and it could be extremely tough for those who have high debt to work their way out if they do not seek a solution while one is available.

More Stimulus Needed to Sustain Economy Says Bank of England Deputy Governor

Charles Bean, the Deputy Governor for the Bank of England has told the press that he believes more financial stimulus is going to be needed in order to help a shaky recovery continue in the United Kingdom. The recent recession’s devastation is not likely to be rebounded from unless the Government is willing to do something serious, Bean has said. He called the current economic state of the UK ‘fragile’ and said that the process of recovery is incomplete now with far more fine tuning needed.

At the time, Bean was speaking to a group in the United States at an annual symposium of the Kansas City Federal Reserve located in Jackson Hole, Wyoming. Policy action, he noted, would be needed to steer the recovery in the proper way. While his US audience took in his message, still reeling from their own version of the UK’s economic crisis, Bean pointed out that even the speeding up of the economic recovery in the UK during the 2nd quarter of 2010 is being overshadowed by a squeeze in the Government’s budget. The US is facing a cooling economy which won’t help Britain, but particularly rough is the fact that the region of the world now on the euro is facing their own severe debt crisis – particularly troublesome since this is the UK’s largest trading partner.

The economic growth that UK citizens enjoyed during the past boom times would have had to have been regulated more tightly, according to Federal Reserve Chairman Ben Bernanke, in order to dodge the most recent credit crisis. However, this would have meant a slower building of savings for many in the UK. Experts say that UK monetary policy ends up having sharp effects on the public, particularly those in wage jobs at lower levels of the income spectrum. For this reason, many today who had thought the debts they accumulated during the boom would have time to be paid off, now must seek out an IVA if they want the chance to recover without spending decades paying down nearly insurmountable debt loads.

Bean did go on to say that he believed central banks such as the Bank of England and the Federal Reserve needed to be very cautious regarding targets for inflation so that interest rates would not end up having such profound effects on the prices of average consumer goods used by men and women across the UK and the US.

In all, the recession continues to lurk in the background, says the Office for Budget Responsibility, as the UK continues cutting public spending to levels not seen since the second World War. However, the gross domestic product for the 2nd quarter of 2010 has expanded a little more than 1 percent which is the largest spate of growth since 2001 and exceeds expectations despite the fact that the service industries are not growing as quickly as had been hoped.

All in all, this could be an excellent time for consumers to consider an IVA, say financial advisors, since either a recession or a boom could end up far better for those who are already in a solid plan for their own financial recovery.

UK Businesses Worry Over Double Dip Recession

The British Chamber of Commerce has said that it believes the coming years could be a struggle for the United Kingdom’s economy, despite the fact that the 2nd Quarter of 2010 was a record growth period that saw economic growth at a rate that had not been seen in over a decade. The issue, the Chamber said, comes from the fact that the economy itself is still quite fragile and a double dip recession is more than a mere probability, but quite likely.

This is not good news for those who had been hoping another spike might help them manage their debts. Financial advocates for the consumer sector continue to urge those borrowers facing significant and overwhelming debt to consider the individual voluntary agreement to get out from under the financial burden rather than try to wait out the economy for higher wages or for cost of living to settle.

The Chamber also went on to say that the austerity programme from the government may well help the credit rating for British national debt be kept from a downgrade, but that the mere cuts in spending could throw the economy off balance even further now that so many parts of it are tied in with Government money and regulations. Even as the deficit decreases, say some experts, the chance for that dreaded double dip recession are raised because a relapse would be all too easy at this stage in the current recovery.

Consumer debts being paid off will take several years, the same way that getting the banking system into stronger shape will take several years, say experts, and during this time growth is likely to look sparse compared with the rates of the past. However, if these things are not handled today while it is possible to do so then the future could hold even more dire consequences for today’s lack of action, economic experts say.

Despite predictions of up to 2.2% growth in the UK economy for the coming years, the VAT is expected to rise to 20% and that will chew into consumer spending in a big way. This, along with the fact that 2.65 million Britons are expected to be out of work by the middle of 2012, may look awful but is quite a bit better than the 3 million who were jobless during the recession of the 1990’s.

Third of British Public Using Savings for Every Day Expenses

Troubling news has recently come to light in the British media from an investment group known as Schroders which monitors the economy in the United Kingdom in an effort to determine the effects of the recent global credit crunch. The latest research from the group shows that one third of UK citizens have avoided falling into debt at a very sharp cost: they are dipping into their long term savings and other investments as a means of making ends meet on the day to day basis.

According to the group’s statistics, this segment of the UK population has already spent well over £4,500 in the past year alone as a means of trying to dodge debt. All together, the demographic has spent more than £60 billion of their stored financial resources desperately attempting to avoid debt as the cost of living continues to rise, aided by taxation many critics blame for troubled British household finances today.

In order to obtain the results of the research, a survey over 2,000 adults in the UK was undertaken. Both men and women were surveyed and the findings indicated that nearly 35% of women proved willing to dip into their savings as a means of avoiding debt while mean did so less than 30% of the time. The real issue, of course, says Schroders’ Managing Director Robin Stoakley, is that those individuals who are getting close to the age of retirement have far less of a chance to rebuild the savings they have and this puts them at a severe risk for the future if times do not shift in their favour.

Many experts have sounded off to the media that this segment of the population is dealing with the same problems that those who seek debt management plans are dealing with. The difference, however, is that those already in a debt management plan have professional advisors on their side to help them restructure their spending to cope with today’s changing UK economy. It remains hard to say which group will fare better, but analysts suggest that those who refuse to adapt their spending patterns to meet with today’s economic realities could be in for trouble.

Millions of British Women Entering Debt to Look Like Celebrities

More and more British women are finding themselves at the end of their financial ropes as times get harder, even after the global recession was said to have been on the way out. In the United Kingdom today, many women are eager to emulate popular celebrities and it is costing them to the tune of several thousand pounds with more added monthly. This alone is driving them to enter debt management plans in record numbers – at least for those who are able to come to their senses before it is too late.

New research from a top online price comparison site has revealed that fully 4 million women in the UK have run up debts averaging out to well over £3,000 in an attempt to look just like the celebrities they so admire. Much of this comes from the grand media culture that has definitely overtaken Britain in the past few decades, one of opulence and extravagance on a level that few can afford to keep up with.

This should be balanced, experts say, with the fact that an additional 3 million British men are finding themselves in the same position, meaning they have racked up debts that are far in excess of their monthly income. Men, too, are becoming ’shopaholics’ in the UK today, driving their balances ever higher on both store cards and credit cards, even taking out high loans to buy things they cannot afford. One in seven men face this situation while the ratio is even higher for UK women today.

Researchers have shared that women are primarily spending on high street fashions, but men are also splurging on designer clothing to the tune of over £550 each year for big name labels, twice what women spend for similar items. Men are leading the way in spending on person grooming products as cultural values continue to push them towards an ever more image conscious mentality, now outspending women who used to rule this sector of the average British budget. Men cite professional reasons for their spending, but experts are not convinced of the wisdom of taking on debt for reasons of personal appearance – job related or not.

According to researchers, these disturbing spending trends are often seen as easily fixable by short term solutions, but those solutions will do no good in the long run as interest rates rise and credit continues to be harder to obtain for the average UK resident.

Public Debt Expected to Reach 90% of GDP in Britain by 2013

Things are looking quite grim on a grand scale according to new information coming out from Moody’s, the world famous credit rating agency that researches and analyzes international businesses and governments around the globe. Moody’s, based in the United States and partly owned by one of the world’s richest men Warren Buffet’s company Berkshire Hathaway, is considered to be a vital source of credit ratings for not only multinational corporate conglomerates, but sovereign nations, as well. According to word from Moody’s, not only are Western nations like the United States and the United Kingdom facing a serious debt crisis, but in the UK public debt is actually now expected to reach 90 per cent of the GDP (Gross Domestic Product) in only another 36 months.

This particular situation had not been expected to materialise for another one and a half to two decades, but now time is running out, according to Moody’s own publication, the Sovereign Monitor. The US will be quick to join the UK, says Moody’s, if it manages to fail in its efforts to rejuvenate its economy and interest payments will hit 14 per cent of income derived from taxation. The past three years has already seen the ratio of debt to revenue rise to 430 percent, nearly double what it was before the beginning of that period.

Moody’s also says that Spain, Germany, France, the US and the UK are all in dire danger of experiencing what it refers to as ‘interest rate shock’ to to sky high deficits or the need to roll over short term debt in small chunks. Moody’s has now announced that any nation which fails to show that it has the level of ’social cohesion’ to get its debt back to solid ground will lose the highly regarded AAA credit rating that Moody’s is responsible for bestowing on nations that its analysts approve. Part of the issue, according to the credit ratings agency, is conflicts between older and younger generations that are resulting in situations where pensions and similar forms of income for the elderly are causing disputes at a high level of society.

The agency went on to say that the debt crisis in Europe of the past few years has changed the world and that no nation is simply automatically worthy of credit. Now, says Moody’s, the governments of the world must prove that they deserve to be lent money. In the UK, the traditional safety net has been the fact that debts for the Government would be of a long term nature and thus allow time for carefully planned repayment, but the deficit is growing that debt at faster and faster levels. This means Moody’s is likely targeting the UK with intent to knock it down from its traditional AAA credit rating position.

Public debt in the UK being expected to hit 90 per cent of the GDP in 3 years, says Moody’s, means that if Britain’s Government does not exercise steel resolve to tighten its spending by any means necessary, a sharp rise in funding costs and the expected slow growth of its economy will cause a debt spiral to materialize and down will go the country’s ability to repay what it owes outside lenders.

According to some researchers, today’s financial crisis in the UK is different from what happened in Britain following the massive spending to rebuild after funding Allied efforts in World War II because the economies then were able to grow past their burden of debt. Instead, analysts state that people living longer and reproducing more slowly is leading to high costs from the older portion of the population and rising costs of health care for that demographic. Polices in the UK, economic advisers have been quoted as saying, must change in order to avoid future troubles.

Fewer Homes Repossessed in UK Today But Trend Could Change

The generally strong government of the United Kingdom has often been there to rescue its citizens in times of economic crisis, but when things are bad at the global level, the picture changes quite drastically. This is the situation faced in the UK today and word has come that there is some positive news in the fact that the number of homes repossessed in the 2nd Quarter of 2010 has fallen by just over 4 per cent, a good sign for many who have been worried about losing their home due to rising debts. However, the good news is tainted with strongly vocal warnings from groups that assist debtors. These groups say that a cut in the level of support the government offers those who in debt could very well send that percentage right back up.

Although this is the 3rd straight quarter that homes repossessions have been on the decline, lenders are getting nervous because the government is set to reduce its support for those struggling under debt in October of 2010. When that happens, the figure could change because arrears on mortgage payments will be much harder to deal with. Though a 5 per cent fall of those in arrears has been published by t Council of Mortgage Lenders just recently, the drop is not expected to be one that could be easily sustained. Borrowers who have lost their income from work are not going to be getting the same level of help that they once would have. In fact, the mortgage interest support payment level is going to be cut almost in half, according to some expert estimations, as soon as this Fall when those benefits will be calculated via a different level that is not expected to benefit borrowers in any meaningful way..

Right now, these benefits are paid at just a bit over 6 per cent, but once the Bank of England’s monthly average mortgage rate changes – and it is expected that they will – then things could get a great deal trickier for UK home owners who are still paying down a mortgage. Currently, the average mortgage interest rate per month is just under 4 per cent.

Due to these changes, a large number of UK borrowers are quite likely to lose their homes. Experts have told the press that they believe the mortgage troubles reported in the nation thus far are actually quite a bit lower than what they had anticipated for this year. The safety net for those borrowing on a home is going to be cut and this is never a good sign.

Today’s UK borrowers struggling with serious debt are definitely advised to seek out alternatives such as a Debt Management Plan when they can.

UK Debt Charities Unable to Help Many

Tough economic times are not easy on any person experiencing them in the United Kingdom today and many charities are trying to help, but reports are flooding into the media that these charities are so over loaded that there are millions of people in desperate need falling through the cracks. In some cases, people go to extremes and the media is quick to highlight and report stories in which those debtors who did not even attempt an IVA or similar agreement resort to suicide or even murder as a means of avoiding their apparent shame at a natural situation like debt. These are the cases charities are seeking to avoid, but even they have limited funding and man power these days.

Debt, combined with situations such as redundancy and home repossessions are leading many to extreme levels of emotional angst, a certainly understandable situation for those who are not aware of the methods out there which can turn a serious situation. Many experts claim that the ‘quick fix’ obsession of UK culture today, which is mirrored in most of the developed nations around the globe at the present time, is a big part of the problem. An IVA or even a bankruptcy certainly take some time to complete, but in nearly every single case the debtor is at least able to get back on their feet and few people find that their initial mistakes are worth repeating.

Right now, in the UK there is nearly £1.5 million in consumer debt shared by millions of UK citizens who are quite literally dogged by creditors – a fact which tends to add a great deal of stress to an already difficult situation in which the debtor could feel hopeless and scared. Debt collection agencies are also in fear of a double dip recession that could mean they are unable to collect and keep their companies afloat.

Some charities have reported well over 1,000 calls from desperate UK citizens deep in debt and most often they come from all walks of life. Things like overdrafts, cut hours at work, loans from family, personal loans from banks or other lenders, having to hire a car to commute to jobs and a variety of other debts are piling up fast for many who struggle to keep their head above water in the unpredictable seas of today’s economy. Banks are not feeling particularly giving these days and young people are entering into an economic situation that is far more dog eat dog than their parent’s generation had to deal with. As a result, many are looking at low wage jobs where less than £8 an hour is the starting wage with raises being few and far between. Trying to afford a rental on this level of income, much less an unexpected baby, can be extremely tough.

However, it is not only young people who are finding that the economy has no real shelter to offer them. Even those who had decent credit are finding that it may not be enough and that keeping it in the bank could eat their living expenses the moment they cash their pay cheque as overdrafts and any kind of direct debit chews their income to next to nothing. Mortgages are lower in interest now, but expenses for those who own a home are many.

It is certainly a brutal situation for those on the lower end of the economic spectrum these days, but with consideration of the options for those who don’t wish to wait for a charity’s decision, things can be made easier far more rapidly, say financial experts. Hope is always a possibility for those who investigate their options, they say, even when things look blackest.