A WORCESTER accountant has warned households to keep an eye on debt following the quarter per cent rise in interest rates announced last week.
David Cornelius, a director of Rabjohns Business and Tax Advisers, in College Yard, said although the Bank of England's Monetary Policy Committee (MPC) had raised interest rates by only one quarter of a per cent, it was a "shot across the bows" of consumer spending.
His comments come as Mervyn King, governor of the Bank of England, urged borrowers to "think carefully" about how much debt they can afford, as he presented the Bank's quarterly Inflation Report this week.
Although the BoE has refused to be drawn on future interest rate rises, analysts are predicting an increase based on growth and inflation forecasts.
And Department of Trade and Industry figures, released today, show soaring household debt inflicted the highest level of personal insolvencies in more than a decade during the third quarter of the year.
Analysts fear many more bankruptcies are likely, as debt-burdened households have not planned their finances to allow for future interest rate rises.
Consumer debt stands at a staggering £906bn as people continue to take out loans against the value of their house. The biggest problem, however, is credit cards, with some people owing as much as £50,000 on credit and store cards.
"The rise in the base rate announced last Thursday was fully expected and arrived as forecast," said Mr Cornelius.
"The real question is whether the MPC was motivated to increase rates in an attempt to encourage a reduction in the rate at which consumer debt is being taken, and try to put the brakes on the UK housing market."
Mr Cornelius said while it was only a quarter per cent rise, this actually represented an increase of seven per cent in real terms. If rates go up by another quarter per cent, this will be a real increase of 15 per cent.
"In the excitement of only a modest hike, it is easy to forget that this is a real comparative rise of more than seven per cent. It's also a shot across the bows of extraordinarily high consumer borrowing, being the first rise since February 2000."
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