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News - 5 August 2006
Rising debt and rising interest rates not a good recipe for retail
As more and more people duck out of growing debt repayments by declaring themselves bankrupt the Bank of England has gone ahead with the decision to raise interest rates. Meanwhile the business of advising on bankruptcy looks set to become the next boom industry. This can only be bad news for the retail business.
New bankruptcy laws have made it easier for people to throw off their debts and start again by taking the Individual Voluntary Arrangement (IVA) route. But the first thing the IVA adviser will do is confiscate all credit cards. Credit for these unfortunate individuals will not be easy to come by for a long time to come and the message being sent out to the rest of society is one of caution.
Many of these IVA advisory companies are experiencing exponential growth. A good example is Debts.co.uk. It has reported that trading in the last quarter had exceeded its own forecasts and put it on course to produce full year profits in line with market expectations. The shares, which floated at 180p in May, rose 2.5p to 193p. It is currently handling around 1,200 IVAs a year, but is undergoing expansion that will allow it to increase this to 6,000. The rise in interest rates will probably ensure this target is met.
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