Bank of England interest rate hike worries 3.2m

Millions of Britons are worried they might develop debt problems if the Bank of England raises interest rates on Thursday, a new study has found.

The Bank of England increases and lowers the cost of borrowing in the UK to try to keep inflation in line with its two per cent inflation target.

In recent weeks an increasing number of signs have been pointing towards the Bank's interest rate setting Monetary Policy Committee raising interest rates to five per cent.

An independent debt advice company, Debt Free Direct, has said any rise in interest rates could see more people unable to meet their repayment costs. The fear of a hike already concerns 3.2 million UK residents, the advice company explained.

Debt Free Direct added that it believes the five recent hikes in base rate were a key factor in the current ten-year high in personal bankruptcies.

Andrew Redmond, chief executive of Debt Free Direct, said consumers could struggle with various repayments, should rates rise above their current level of 4.75 per cent.

"There are many people hoping that interest rates won't rise because if they do, they may no longer be able to manage their debts," he said.

The National Association of Estate Agents (NAEA) has also expressed concern over the prospect of rising repayment costs.

Peter Bolton King, NAEA chief executive, said that credit card debt could suffer if interest rates rise.

He said: "Many homeowners will be struggling to meet their increased mortgage repayments [if interest rates rise] putting additional pressure on credit card spending and the increasing levels of consumer debt in this country.

"For the benefit of all, we urge the Bank to consider carefully the full consequences of its decision. The housing market is showing only marginal indications of recovery from last year's slowdown and any significant additional pressure could prove to be the final straw."

Debt Free Direct has issued several pieces of advice aimed at helping people to deal with bad debt or credit problems, should the Bank announce a rate rise.

These include: not ignoring debt; making sure you are getting all the help from the State that is possible and looking to reduce the amount of money that is being spent unnecessarily; if payments are proving difficult, prioritising debts and placing mortgage payments at the top.