Millions of adults in the UK would have to borrow money to afford an unexpected bill of £300, research has found.
The survey of 2,000 adults, which was conducted by PwC and TotallyMoney, the credit advice company, found that 16 million adults across the country would struggle with a one-off payment at a time when household income is being squeezed by consumer prices at a 30-year-high.
Inflation reached 7 per cent in March and is expected to hit double digits by autumn, according to the Bank of England’s latest projections. The main driver of the price rises is the surge in global energy prices during the pandemic, which have been compounded by the war in Ukraine.
About one in three adults may struggle to access credit from high street lenders, representing a 50 per cent rise in the last six years, according to the research. Those who are least likely to be able to borrow are typically younger adults on lower incomes. About 8.9 million adults are at risk of falling into this category and are more likely to use their bank account overdrafts for spending on essentials such as groceries and household utilities.
Households will face one of the most significant hits to their take-home pay since records began in 1964, according to forecasts in the Bank’s latest monetary policy report. Real income, the value of earnings after adjusting for the impact of inflation, will fall by 1.75 percentage points this year, according to the Bank’s latest projections, which include the impact of government support for households. The only other time it contracted as much was in 2011 during austerity measures imposed by the former chancellor George Osborne.
Simon Westcott, strategy and UK financial services lead at PwC UK, said: “There is no doubt that the long tail of the pandemic combined with the rising cost of living has put a significant strain on people’s financial health . . . So much so that our survey shows that an estimated 16 million adults in the UK would need to take out some form of credit to afford an unexpected bill of £300.”
He added: “This plus the fact that just over 20 million consumers may then struggle to access high street lending — according to our research — demonstrates the current pressure on budgets. Given the growth and significance of those struggling to make ends meet, action will need to be taken quickly to avoid more people facing challenging financial circumstances.”
The increase in the cost of living will vastly outstrip growth in wages this year, which are expected to go up by an average of 5.75 per cent. The governor of the central bank told reporters today: “I recognise the hardship this will cause for many people in the UK, particularly for those on the lowest incomes, often with little or no savings, who are hit hardest by the increases in basic necessities like food and energy.”