Money worries gripping nearly half of households

More than four in ten Britons expect their financial situation to deteriorate over the coming months as worries over personal debt continue to pile up.

The proportion of people worried about their debt levels has leapt by 13 percentage points over the past three months, according to R3, the insolvency trade body. Its latest quarterly survey found that 43 per cent of people think their financial circumstances will get worse over the next half year. Less than a quarter believe their finances will improve over the same period.

The report, published days after Scottish households were warned that they faced five more years of declining living standards, said credit card debt was the main source of worry. It claimed that 45 per cent of Britons were worried about the amount of money they owe - a jump of 6 points in just three months - with 56 per cent expressing specific concerns over credit card repayments.

John Hall, Scottish council member for R3, said: "Since we last carried out the survey, people have seen a rise in the cost of living, from the VAT increase to the rise of fuel and utility costs. This has happened against a backdrop of pay freezes, pay cuts and, in some cases, redundancies, so it is understandable that many are feeling pessimistic about their financial outlook."

The biggest worries are among the younger age groups, which are seeing the biggest rise in unemployment. Only one in five pensioners is concerned about their debts, compared with 57 per cent of people aged between 25 and 34.

Many people are struggling to clear extra debts incurred over the Christmas period, with one in four currently saving less than previously and a fifth putting off big financial decisions. More than one in four think they will struggle to make it to pay day without going further into debt and 13 per cent expect to use their overdraft this month.

The research was published just days after a leading Scottish economist warned that households faced five years of economic misery. David Bell, professor of economics at Stirling University, claimed last week that it could be "four or five years" before households returned to the living standards of 2007.

He said rising unemployment, a squeeze on wages and increases in household costs were causing living standards to drop.Any rise in interest rates - which moved a step closer last week when it was revealed that inflation rose again in January - would significantly exacerbate the problem, he added.

The R3 research found that almost one in three homeowners with a mortgage said they would struggle to afford their repayments if they rose by 100 a month.

Bryan Jackson, corporate recovery partner at accountants and business advisers PKF, said the survey underlined a lack of public confidence in the economic recovery. "As long as such uncertainty continues then the economy will remain sluggish," he said. "There are few people around who remain confident about their job prospects, or about their house value, or about their pension entitlements.

"I can't see this improving in the coming year and believe we will have at least another year of economic uncertainty."