The UK debt crisis and inflation crisis are creating alarm in the UK government and distress among UK residents. The UK has recorded the fastest rate of inflation in the past 40 years which stands at 9% and rising. The average Briton expects that he would be losing £3000 this year due to inflation, Covid and rising bills.
The UK residents are facing tough economic times. Financial and mental health standards are declining in the country and almost three-quarters of Britons are of the opinion that they will be paying £252 per month more.
Chancellor of the Exchequer Rishi Sunak is targeting relief measures for those at work. The Labour opposition in turn has its own opinion. It is asserted that help should be extended to pensioners and all those people who are on benefits.
You should know that the UK had an economic boom in the late 1990s, which led to an increase in personal debt and spending. The country’s credit rating was downgraded for the first time by Moody’s Investors Service in 2007 and again by Standard & Poor’s Rating Services in 2008.
If you didn’t know already, the UK’s debt crisis was caused by years of overspending on public services and welfare benefits, tax cuts for higher earners, and a financial sector that has grown too large relative to GDP.
What are the Main Causes of the UK Debt Crisis?
1. The UK debt crisis has been ongoing since 2008. It was only in 2012 that the UK government finally admitted that they were in trouble. The fact was that the country went from being a net creditor nation (meaning that they had more money coming into the country than they spent) to a net debtor nation. This means that the government now owes more money than what it receives each year.
2. The reason this happened is because of the financial crisis of 2008. The global economy took a hit after the subprime mortgage crisis and the ensuing credit crunch. Banks stopped lending money to people and businesses, causing a huge drop in revenue. To make matters worse, many companies started laying off employees and reducing wages. As a result, the government saw its tax revenues decrease substantially while spending increased.
The solution? Well, the government did raise taxes and cut back on some expenses. However, the problem still persists.
How does this affect me?
Well, the first thing you should do is take stock of your own finances. Are you able to pay your bills on time without having to borrow money from other sources? You should have enough savings to take care of any emergencies that might come up.
If you answered “no” to either question, then you need to start budgeting better. Start by cutting down on unnecessary expenses. Then, look for ways to increase your income. After all, you don’t want to find yourself in a position where you are struggling to pay your bills.
A small reason to cheer is that consumer spending in the UK is back to the pre-pandemic level. The shift towards online shopping has also remained intact and online sales total 27% of the total sales. This percentage is above the pre-pandemic level of 19.9%.
Despite the gloom and doom predictions, keep your fingers crossed and share with us how you plan to handle this phase of your life for you and your family.