surviving the recession

Earlier in the week we had the surprise news that the Consumer Price Index had risen to 3.2% in February (everyone had been expecting a fall due to the recession curbing demand). The Governor of the Bank of England had to write a letter of explanation to the Chancellor of the Exchequer (the BoE is meant to ensure that CPI is no more than 1% above 2%).

What does this mean? It means demand is more resilient than thought, and if CPI continues to be high, interest rates will rise to curb it.

The thought of interest rates rising will cause a shudder to ripple through anyone who has any debt. People have been relieved by the fall in interest rates bringing down mortgage payments for those on the tracker or standard variable rate. But a rise would bring pain once more.

What to do? Lose no time in reducing your credit card debt. It carries the highest interest and does your wallet the most damage. Then move on to overpaying your mortgage if the terms of your mortgage allow you to. The less debt you carry the better you will be able to cope if interest rates rise.

We live in difficult times - the dreaded word “stagflation” lurks on people’s lips. Stagflation is where inflation is high, but the economy is in recession. The last time we had this was the 1970’s, and the cure was to tackle inflation by putting rates up to eye-watering heights, which sorted the problem out (but at enormous  cost). Once inflation was sorted the economy started to grow again. But it was painful. Protect yourself now by paying down your debt.

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