Indebted households facing inflation and interest rate “double whammy”

It comes after the Bank of England announced its decision to raise the policy rate, pushing up interest rates. This, according to the not-for-profit, will push up the cost of borrowing while being unlikely to feed through to relief in the form of lower inflation quickly enough to help struggling households.

The fact that markets have already priced in expectations of a future rate rise means that on common types of borrowing, such as credit cards, the cost of borrowing has already risen. In addition to this, with inflation running at around five percent, many households in debt are finding the gap between their incomes and their outgoings are getting wider, with the cost of food, fuel and energy far higher than a year ago. 

And for those hardest pressed households who are caught in the trap of both higher prices and borrowing, the current conditions raise the risk of falling into debt and exacerbate existing debt problems.

This is why StepChange is calling for the government to accelerate the uprating of benefits, which is due to take effect in April. It says that waiting another four months for an uprating that already falls short of the increase in the cost of living will inevitably create problems for those lower income households already experiencing problem debt.  

Implementing the uprating early would go some way to alleviating this pressure. 

Commenting on this, the StepChange’s director of external affairs Richard Lane said: "Throughout the pandemic, the treasury has shown itself able to respond at pace and with agility to protect against the worst effects of Covid on the economy and on individuals. Now is the time to do so again, by bringing forward the timing of the benefit uprating to help households get through this next challenging period. 

“For financially vulnerable households who are already struggling to make ends meet, neither higher interest rates nor high inflation are at all welcome, but for many such households the impact of higher inflation is the greater evil. An early uprating would be a tangible way of supporting those households at greatest risk of harm due to the rise in the cost of living."