UK households are expected to rack up extra unsecured debts of more than £1,600 this year, including on loans and credit cards, as the cost of living crisis continues to bite, according to a TUC analysis.

The TUC said its analysis showed that unsecured household debt – including loans and credit cards but excluding mortgages and, for this exercise, student loans – was on course to increase by 9.4%, or £1,660, in real terms on average per household this year.

It added that this was the largest annual rise in cash terms since records began in 1987.

The trade union body said its findings made a mockery of government claims that “the plan is working” to cut inflation and reduce the pressure on household finances.

The TUC’s data coincided with official figures showing that a record number of people in England and Wales took out a debt relief order (DRO) – a form of insolvency whereby individuals can get their debts written off – in May.

The TUC said it used official debt data and Office for Budget Responsibility forecasts to produce its analysis.

During the cost of living crisis, some borrowing costs have hit record highs, piling the pressure on consumers as bigger housing, energy and food bills force households to put more on credit and take out loans.

On 31 May, the Bank of England revealed that the effective interest rates on overdrafts and credit cards increased by 55 and 20 basis points, to 22.76% and 21.46% respectively. The effective rate on new personal loans to individuals, meanwhile, rose by 62 basis points to 9.01%.

The TUC said that polling carried out for it by YouGov last month showed that millions of people continued to struggle with the cost of living.

More than four in 10 of those surveyed said they had cut back on essentials such as food and utility spending this year, while 60% said they had reduced non-essential spending, including dining out and entertainment.

About a fifth of respondents to the poll of more than 2,000 people said they had fallen behind on household bills in recent months.

The TUC has estimated that UK workers are on course for “nearly two decades of lost living standards”, with real wages not forecast to recover to their 2008 level until 2026. It claimed the average worker would now be £14,700 better off if their pay had kept up with pre-crisis real wage growth trends since 2008.

Last month, when it emerged that UK inflation had fallen to 2.3% in April, its lowest level for almost three years, Rishi Sunak said: “This is proof that the plan is working and that the difficult decisions we have taken are paying off.”

But Paul Nowak, the TUC general secretary, said its findings “show how out of touch this Conservative government is with people’s struggles”.

Figures from the Insolvency Service showed that the number of DROs taken out by individuals reached a new record monthly high of 3,716 – up 8% on the previous record set in April 2024.

A DRO is a solution to help people deal with personal debts they cannot pay, and they are viewed by some as a low-cost alternative to bankruptcy.