UK Personal Debt Almost Equivalent to 2012 GDP Amid Cost of Living Crisis [VIDEO]

Personal debt in the UK is nearing an all-time high as Britons increase their borrowing to meet rising living costs amid low wage growth and high inflation.

A study by the Centre for Social Justice (CSJ) revealed that total personal debt in the UK has risen to £1.4tn ($2.26tn, €1.67tn), with average household debt standing at £54,000 - about twice the level seen a decade ago.

UK households currently owe the equivalent of 94% of the country's economic output in 2012. Among European countries, only Ireland has a higher ratio of personal debt to GDP.

The report by the Conservative-leaning think tank added that unsecured consumer debt has almost tripled in the last 20 years, reaching nearly £160bn currently.

In addition, the poorest 10% in the UK have average debts more than four times their annual income, according to the report. These people have to spend nearly half their gross monthly income in repayments.

"Years of increased borrowing, rising living costs and struggling to save has forced many families into a debt trap that is proving very difficult to escape," Christian Guy, director of the CSJ, said in a statement.

"Problem debt can have a corrosive impact on people and families. Across the UK people are up until the early hours worrying about their finances and bills."

Guy noted that the poorest in the UK are cut off from mainstream banking so that they are forced to take loans from "loan sharks" and high cost lenders.

The market for short-term high-cost credit, including those from payday lenders, pawnbrokers, rent-to-buy and doorstop lenders, increased dramatically and is now worth £4.8bn per year, according to the report.

'Hundreds Become Homeless Every Month'

The CSJ added that hundreds of Britons are made homeless every month as they are unable to meet mortgage and rent payments.

"More than 26,000 UK households have been accepted by councils as homeless in the last five years because of rent and mortgage arrears, with 5,036 becoming homeless last year," the report said.

This number is expected to increase in the coming years if interest rates rise further.

Housing costs are steadily increasing in the country, as demand for homes outstrips supply.

Side Effects

The CSJ added that problem debt has a variety of knock-on effects - including a reduction in individual well-being.

"With falling real incomes and increasing costs of basic essentials, many - especially the most vulnerable - are sliding further into problem debt," said former Labour Work and Pensions Minister Chris Pond, who chaired the CSJ report.

"The costs to those affected, in stress and mental disorders, relationship breakdown and hardship is immense. But so too is the cost to the nation, measured in lost employment and productivity and in an increased burden on public services."