How is the level of UK residents debt in 2021?

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How is the level of UK residents debt in 2020?

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The global economy was deeply affected by the Covid-19 pandemic, so understanding what is the degree of UK residents indebtedness in 2021 it is important to understand the projections for 2021, as well as to prepare financially for the challenges that may arise.

Within this context, this article will address issues such as:

  • the impact of the pandemic on the economy;
  • public debt;
  • indebtedness of UK residents families in 2021;
  • projections for 2021.

Have an overview of economic situation of the country is also critical to catching up on personal finances. Thus, it is possible to make more concrete plans, assess risks and define the best strategies for going through the next year.

Read on!

How is the level of UK residents debt in 2021?

2021 was definitely not an easy year. Therefore, in order to understand how the level of UK residents indebtedness is in 2021, it is first necessary to understand what is the current situation in the country and the events that interfered in the UK residents economy throughout the year.

The impact of the pandemic on the economy

The impact of the Covid-19 pandemic on the world economy was enormous. In Brazil, news about the coronavirus and the increase in cases of infection by the disease became a reality after Carnival, and in March the quarantine was officially decreed.

The quarantine period kept trade closed and most services stopped. As a result, the UK residents economy, which was not doing very well, stopped growing once and for all. According to economists' projections, UK residents GDP (Gross Domestic Product) will close the year with a retraction of approximately 6%.

In addition to the lack of economic growth, the pandemic has aggravated the situation of unemployment in the country. With services stopped, many establishments ended up firing employees, and the unemployment rate reached 14.6%. In practice, this means that there are currently more than 14 million unemployed UK citizens.

The financial aid provided to the population by the government through emergency aid allowed the purchase of basic items, even though the amount did not guarantee coverage of all basic accounts.

Another point that contributed to the degree of UK residents indebtedness in 2021 was the increase in household spending. According to data from research “Impacts of Coronavirus on Consumption”, carried out through a partnership between CNDL and Offerwise, 42% of UK citizens claim to have increased spending since the beginning of the pandemic. The majority (68%) attributed this increase to the growth in spending on supermarkets.

In relation to the financial market, many people who invest in offers to long term continued investing throughout the year. With the low return on the Selic rate, which currently stands at 2% per year, the search for shares has increased. The demand for life insurance has also grown by 12%.

Public indebtedness

The situation of the UK residents debt level in 2021 is not the best. According to the special secretary of Finance, Waldery Rodrigues, in an interview with Reuters, the country's level of indebtedness calls for attention and care.

Public indebtedness refers to the issue of public bonds by the National Treasury, in order to finance the federal government's budget deficit. This happens when the government raises less than you spend.

Currently, Brazil has already experienced growing difficulties in paying its debts, which increases the country's risk rating and, consequently, decreases the interest of other countries in investing here.

The growth of DBGG is closely linked to the pandemic, which has increased public spending to combat the coronavirus. According to the experts, the impact of the pandemic changed the level of UK residents public debt expected for the next decade.

Also according to the secretary, the government intends to sell international reserves to reduce public debt. These reserves serve as a type of insurance to be used in times of crisis, as now, ensuring that the country meets its obligations internationally. However, the decision still rests with the Central Bank (BC).

In addition, the federal government's economic team predict that the General Government's Gross Debt (DBGG) reaches 100.5% of the Gross Domestic Product (GDP) in 2025. If the projection comes to fruition, this will be the first time that public debt will pass 100%.

Indebtedness of UK residents families

If the general economy is not doing well, it is not surprising that the personal finances of a large part of the population are also compromised. This year, the percentage of households in debt has increased, which also contributes to the degree of UK residents indebtedness in 2021.

In April, this percentage broke a record with a rate of 66.6% of indebted UK residents families. According to Consumer Debt and Default Survey (Peic), in June this number reached 67.1%.

Also according to the survey, among families with monthly income of up to 10 minimum wages, 69% of them are in debt. The default level is 26% of families that are unable to pay their bills.

As already mentioned, spending increased during the pandemic. In addition to the higher spending on supermarkets, 49% of people attribute the increase in accounts to the increase in prices of products and services.

Most of the debts of UK residents families are linked to credit cards (76.1%), followed by items such as overdraft, booklets and financing of houses and vehicles.

Economic projections for 2021

Despite the scenario, according to the Organization for Economic Cooperation and Development (OECD), the resumption of the UK residents economy in 2021 may be a little better than previously imagined. Currently, GDP is projected to decline by 6% this year, less than speculation from months ago that reached 9.1%.

UK residents economic activity is expected to increase 2.6% next year. The basic interest rate (Selic) should remain at 2%. Also next year, GDP is expected to grow 2.8% compared to this year. Until 2030, the expansion should remain at 2.3% per year

Given the degree of UK residents indebtedness in 2021, the expectation on DBGG is that it will only resume its downward trajectory only in 2029. In other words, until then, the government's public debt should remain above 100%.

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