Personal insolvencies the highest since 2011. Are we heading for another recession?
The average UK household spent £572.60 per week in 2018, the biggest cost being transport at 14% of their total expenditure (£80.80 per week); £76.10 was spent on housing and household bills, while £74.60 was spent on recreation.
The average household’s saving ratio is at just 3.9% of expenditure, the lowest since records began in 1957. Worryingly, this data gives a clear indication that spending is increasingly reliant on borrowing or using up savings, leaving many on the verge of insolvency.
It is therefore unsurprising that in the three months from October to December 2018, some 34,100 individuals in England and Wales either filed for bankruptcy or entered into an individual voluntary arrangement (IVA), a 35% increase on the same period in 2017. That took the total number of individuals falling into insolvency for 2018 as whole to more than 115,000, the highest level since 2011 and the third year-on-year increase.
The data shows IVAs reached their highest level ever, jumping by 20% over the year. IVAs are an agreement between individuals and their creditors to pay back debts out of the surplus income left after paying essential living expenses. Provided 75% of the creditors agree to the arrangement, the individual typically has five years to pay under the process before the debt is written off. Secured debts like homes are not affected.
Debt Relief Orders, which can be used if even the smallest debt is completely affordable to an individual with assets under £1000, also hit a five-year high of 27,683 last year.
The reliance on borrowing and savings to meet essential household expenses will undoubtedly have a knock-on effect on businesses dependant on consumer outlay, such as retailers and the leisure industry.
All the information points towards an economy ill-prepared for the potential shock of a no-deal Brexit.