The current cost of living crisis is exacerbated by soaring energy bills which were expected to exceed £3,300 in October. However, with the announcement of the Government Energy Price Guarantee, the average household bill will be capped at £2,500. Last month the Bank of England predicted that the UK economy would slide into recession from the fourth quarter of 2022.
This economic slowdown is expected to last for the next five quarters, or about 15 months.
Experts are sounding the alarm that non-payment of debts during the recession will significantly worsen the situation for households.
Brean Horne, personal finance expert at NerdWallet, expressed concern about the country’s economic outlook and the looming recession ahead.
Ms Horrne explained: “The economic situation for many UK households remains grim as the cost of living crisis continues to deepen.
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“With the inflation rate at its highest level in 40 years and speculation of a potential recession, many households are facing unprecedented financial uncertainty and insecurity.
“Naturally, these difficult economic times can be extremely worrying. But having a clear picture of your finances will help you prepare for the future.
The financial expert has warned the public about the danger posed by debt which can exacerbate people’s existing money problems during a recession.
She added: “Having unpaid debts can not only be worrying, but can also have a direct impact on your credit score.
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“Try to prioritize paying off high cost debt such as credit cards or overdrafts to be in a debt free position which will be really beneficial in times of economic and financial uncertainty.
“If you have a personal loan, make sure it’s paid on time, every month.
“A late payment on a loan, or missing it altogether, can negatively impact your credit score and mean it could be more difficult for you to obtain financial products in the future.”
According to Ms Home, it is essential that people stay on top of their credit score when faced with the prospect of a damaging recession.
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Elizabeth Martins, an economist at HSBC, called the policy a “game changer” in mitigating the impact of bill hikes in October and January 2023.
Specifically, she pointed out that this could prevent the consumer price index (CPI) inflation rate from rising even further.
Recent data from USwitch.com revealed that UK energy debt had skyrocketed to £1.3bn in August 2022.
Around six million households owe their energy suppliers an average of £206, ten per cent more than they owed in April.
On this, Justina Miltienyte, Head of Policy at Uswitch.com, said, “If you’re behind on paying your bills or your energy account is going into debt, talk to your supplier as soon as possible.
“They should be able to help you find a solution, like working out a more affordable payment plan. You may also find that you are eligible for additional support such as hardship funds and other energy assistance programs.