Hike in interest rates will hit millions of low-income households, according to report

The Bank of England is planning on raising the interest rates from May, a move that will affect millions of poorer households and will struggle to cope.

The Resolution Foundation think-tank released a report this week said that half of the low-income families were in debt distress and would not be able to cope with the increase in debt costs. 

Mark Carney, the bank’s governor, said the UK was “well-placed” to cope with an increase in interest, quoting rising average wages and resilient GDP growth.

The new report, released by The Resolution Foundation, showed how the proportion of households in debt distress rose to 45 percent among the poorest fifth of households. over a third of these are struggling to pay for accommodation and a sixth have arrears on either their mortgage or consumer debts.

Matt Whittaker, the chief economist at the Resolution Foundation, said most of those in debt distress were middle or higher income families and therefore were able to cope with the increase in interest.

“However, while the recent growth in debt is less of a concern, it is very worrying that almost half of low-income families are already showing signs of debt distress,” he said.

“While rates have been at historic lows for a decade now, many families have experienced a tight income squeeze over this period and have not been able to get back on the front foot when it comes to servicing their debts,” he added.

“Policymakers must have regard for those low-income households who are already struggling to pay off their debts, and who could be really exposed if interest rates go up faster than currently expected.”

The Bank of England signalled that an interest rate hike will be coming from as early as May this year and that there will be more to come over the course of 2018.