(1888PressRelease)
February 18, 2007 - London, 14th February 2007: Study shows that consumers are less responsive to interest rates as borrowers repay unsecured loans.
Inspite of the sudden quarter point rise in January, the movements in the base rate did not threaten Britons' financial standing.
The Alliance & Leicester (A&L) "borrowing thermometer" shows, there was a rise in interest rates from 0.25% to 5.25% by Bank of England when the year started. The sensitivity also reduced from 8.5 to 8.25 percent.
This implied that the base rate would have to arrive at 8.5 percent before Britons undergo financial strain and spend a huge part of their income (around 30%) in paying loan interests. At present it is 16.5% of household income.
According to Chris Rhodes, director of retail banking (A&L), economic sensitivity to interest rates had eased as consumers have decreased their level of debt.
He said "Consumers have shown an unprecedented appetite to reduce their unsecured borrowing, while their incomes have continued to grow and interest costs on their unsecured borrowings have fallen. This will have taken some of the sting out of the latest increase in base rates.”
However, he mentioned, "While the UK is still in the 'comfortable' zone, the thermometer shows that significant further rate increases will push borrowers towards the 'poorly' level."
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