Borrowing Up Savings Down Spells Trouble For UK Economy
January 26th, 2012 | 
Author: Borrowing Up Savings Down Spells Trouble For UK Economy
Latest financial industry figures show that UK savings balances are reducing at the same time that borrowing levels are on the increase as millions of Britons struggle to pay their increased mortgage payments and increased utility bills.
The credit crunch is being blamed for people using their savings to pay for luxuries such as summer holidays and that draw on cash reduced the UKs savings balances by 11billion in the third quarter of 2007. However at the same time according to Unbiased a website promoting independent financial advice UK consumers also increased their borrowings by 11.7billion as people took out more loans and increased credit cards usage.
Unbiaseds research examines the relationship between savings and borrowings excluding mortgages and highlights that over the third quarter of 2007 UK consumers borrowed 35p for every pound saved. That represents a significant increase on the figure of 13p borrowed against every pound saved in the previous quarter.
Chief executive of Unbiased David Elms said: “Weve seen a lot of financial markets activity in the third quarter of 2007 which marked the beginning of the Northern Rock crisis. Summer interest rates were still at a relatively high 5.75 and many people will have seen their disposable income reduced as the credit crunch kicked in. Although the drop in savings and the high level of borrowing come as no surprise it is worrying.”
The situation is unlikely to improve in the short term especially during the run up to Christmas when spending is predicted to increase significantly. That Christmas spending has to be funded somehow and many financial experts are expecting it to be by credit card. Indeed experts expect the amount spent on UK credit cards over the past three months to rise sharply not only fuelled by Christmas spending but also by worrying evidence that in the light of the credit crunch many are using their cards to fund daytoday expenditure.
Many Britons have got used to the financial landscape of the last 10 years in which consumer credit has been easily accessible but many expecting to take advantage of new interestfree credit card deals are likely to be disappointed. The credit crunch has bitten and many lenders have drastically tightened their lending criteria leading to record numbers of applicants being turned down for new credit cards.
Unfortunately as many are now finding to their cost it is no longer a case of being able to compare credit cards and transfer your balance interestfree to the one you want. Indeed it is now the credit card companies that are doing the comparisons and cherrypicking their cardholders.
About the writer: Paul McIndoe is an online freelance journalist and keen hillwalker. He lives in Edinburgh with his two dogs.
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