Maybe it was the hint from Bank of England Governor, Mark Carney that the interest rate might rise before the end of 2015? Were millions of UK adults who survive month to month by managing debt on their credit borrowing persuaded by Carney’s gentle warning and decided to put the brakes on retail spending in June?
Whatever forces were at work, an unexpected drop in sales in items, such as food and petrol of 0.2 per cent was reported by the Office for National Statistics (ONS). At the same time, the ONS said the UK economy had grown by an estimated 0.7 per cent between April and June – boosted by oil and gas production. Output during the second quarter was 2.6 per cent higher than the same period in 2014.
UK unemployment total has also risen
But while the economy might have benefited, it seems the consumer at large was more cautious in taking advantage. The approach may be not be that surprising. There are three million people in ‘problem debt’ and some nine million who struggle to make ends meet and unable to get out of debt. The UK unemployment total has also risen to nearly 6 per cent for the first time in two years. Between March and May, nearly 1.9 million people were unemployed, a rise of 15,000 since the start of 2015. Meanwhile, it is also being reported that those in work saw an improvement to the wage rise rate.
Looking a little more closely at the figures for the middle of the second quarter may help to provide answers as to why the ordinary consumer is forced to do a little less consuming. More than 40 per cent of take home pay is spent by those in private rented accommodation, say The Money Charity. After tax deductions on the average wage packet, just under 5 per cent is able to be saved by the average household – a figure lower than before the 2008 financial crisis. More than 9.2 million households have no savings at all.
The average total debt per household – including mortgages – had risen by more than £70 from the previous month to £53,790 in May. The average debt per UK adult had also increased to £28, 442 or more than 110 per cent or average earnings. Each person was also paying an average of more than £2,000 in annual interest payments, or more than 4 per cent of average earnings.
No comfort to the average household trying to budget from week to week
Before the June slowdown, the average household had added an extra £400 to their credit debt over the year and pushing their credit borrowing up to nearly £3,400 over the month. Plunging deflation and historic low interest rates may have helped fuel credit spending but by June the press were leaking the news that the July budget would see cuts to tax credits and welfare benefits. Financial analysts were already suggesting that better than expected employment figures might prompt the Bank of England to raise interest rates earlier than 2016.
The employment figures are down again and rates are now not expected to rise for another 12 months. But this may be no comfort to the average household trying to budget from week to week with an average credit debt of £6,425 outstanding.