January saw a significant number of households struggling to pay their bills, highlighting the financial challenges faced after the holiday season. According to research conducted by consumer campaign group Which?, around 2.3 million households defaulted on mortgage, rent, loan, credit card, or household bill payments in January, representing an increase from the previous month’s figure of 1.9 million. Additionally, it is estimated that over 16 million households had to make financial adjustments such as cutting back on essentials, tapping into savings, or selling belongings.
While it is common for bill defaults to rise in January, Which? cautioned that persistently high inflation is putting immense strain on household finances. The research also revealed that the poorest households have faced the sharpest rise in bills. In October, the bottom income quintile with an average annual earning of £15,287 experienced a “lived rate of inflation” of 11.5%, in stark contrast to the 8.6% rate observed for the highest earning quintile with an average salary of £83,004. This marks the largest inflation disparity recorded since 2016, when Which? began collecting data.
Single parents and pensioners were particularly affected, as they allocate a higher proportion of their budget to food, energy, and fuel – the primary drivers of high inflation. In fact, food inflation hit a record high of 13.8% in January, with the cost of fresh food rising even faster at 15.7%, according to the British Retail Consortium. Rocio Concha, representative of Which?, called on businesses in essential sectors like food, energy, and broadband to take additional action in supporting customers in securing good deals and avoiding unnecessary or unfair costs and charges.
As a result of these challenges, a growing number of individuals have resorted to credit cards as a means to cover their bills. Data from the Bank of England shows that the annual growth rate for credit card borrowing increased from 12.2% in November to 12.4% in December. However, it is worth noting that the cost of borrowing has also risen, with the effective interest rate on interest-bearing credit cards climbing to 19.6% at the end of last year, compared to 19.2% in November.
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