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UK Insolvency rise by 55% and on target to hit a record 100,000 for 2006 As interest rates are due to rise to 5% !

Economics / UK Economy Nov 05, 2006 - 02:59 PM GMT

By: Sarah_Jones

Economics

Last week, Government figures showed that a record 27,644 people went insolvent during the summer - more than 55% up on the same period last year and leaving the UK on target to hit 100,000 insolvencies in 2006 for the first time.

The figures sparked fears of dark times for retailers as debt ridden consumers are expected to tighten their belts in the run-up to Christmas. The seasonally adjusted personal insolvency increased 55.4 per cent on a year ago and 5.7 per on the previous quarter. Bankruptcies at 15,416, up 26.6 per cent compared with a year ago, but Individual Voluntary Arrangements soared to 12,228, up 117.9 per cent on last year and 9.8 per cent on the previous quarter. House repossessions are likely to exceed 12,000 this year and that 38 per cent of all bankrupts were now unemployed.


Interest rates will hit 5% on Thursday, which for a long time was seen as the potential peak, now with inflation storm clouds brewing interest rate forecasts are creeping up to 5.25%. The Marketoracle long standing forecast (Nov 05), is for interest rates to reach 5.75%. Thursdays rate hike will mean an additional £75 per month on the average mortgage.

The implications of a 5.75% base rate on the housing market and further debt problems cannot be under estimated. As mortgage rates would pass the 7% mark. The 5.75% target may still sound far fetched but with “broad” money, M4, rising at a 14.5% rate, its fastest for 16 years. There is much more inflationary pressure building up which will show itself in RPI and CPI during 2007.

Also Europe's key interest rate is expected to rise to 3.75% next year, from the current 3.25%.


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