As a platform, we take great pride in all that we've achieved since opening our doors for business nearly six years ago. We’ve
Is the end of BOE rate inertia finally in sight?
In this blog, we’ve argued time and again in favour of the Bank of England increasing base rates, and always been the first to back Monetary Policy Committee members, who, at varying intervals over the past eight years, have explicitly or implicitly conveyed hawkish instincts. But it has, sadly, proved to be a false dawn at every turn, and this week was no exception, as rates – currently at record lows of 0.25 per cent – once again held firm after a 7-2 vote.
The irony of this week’s rates decision is that it falls on the tenth anniversary of the Northern Rock bank run, which, in itself, has brought the ramifications of 350-year low interest rates and the never-ending policy of quantitative easing into sharp focus.
The damning facts
As revealed in This is Money, savers are now earning a woeful 20 per cent of the interest they were a decade ago. Pensioners in particular have been squeezed by virtue of the knock-on effect to annuities. This is Money’s analysis determined that a pension fund of £100,000, coupled with savings of £40,000, could have yielded an annuity income of just over £9,900 per year in 2007. Today, the equivalent figure has fallen off a cliff to just under £5,400 – or a drop-off of nearly 50 per cent.
Of course, 2015’s pension freedoms mean that annuitising is no longer mandatory, which has allowed those over the age of 55 to maximise their incomes via asset classes such as peer-to-peer lending, which also offers a new category of ISA to shield returns from tax. But it has also left many pensioners searching for higher returns on the stock market too, in addition to other risky investments. With no chance of recouping any potential losses incurred via future career earnings, it thus puts the UK’s retirees in a perilous position.
And it isn’t just pensioners who have suffered. A couple with a savings pot of £40,000 could have racked up nearly £2,700 worth of annual interest from the best-paying easy-access account prior to the financial crisis. Today, the corresponding figure is just over £500! Clearly, savers have been disincentivised since 2007, which goes a long way towards explaining why household savings rates have plummeted to record lows.
Inflation up, real wage growth down
This week, the case for increasing rates has strengthened immeasurably. Firstly, pundits and experts across the board were surprised to see inflation soar to 2.9 per cent for August – the highest for four years, and within touching distance of the 3 per cent threshold which is deemed ‘too high’. Given that the driver of this current inflation has been accounted for almost entirely by the depreciation of pound sterling, it is clear that a rates increase is the best possible antidote.
To compound this point, it was revealed that wage growth fell even further behind inflation in August, which reaffirms the unacceptable sustained squeeze on household budgets. With economic growth forecast to be stagnant for the foreseeable future, and the effect of record-low unemployment visibly not having the desired collective bargaining effect on wages, it is clear that reducing inflation is the golden ticket in terms of providing relief to consumers.
At a more macroeconomic level, there are two key arguments in favour of pulling the trigger as well. Firstly, the Federal Reserve has already begun to incrementally boost interest rates, while it appears that Mario Draghi’s hesitance to do the same will not last too much longer, with the ECB’s own quantitative easing programme set to come to an end soon, and the eurozone increasingly showing signs of strength. Were Britain to fail to follow suit, our currency weakness will be magnified.
And secondly, if it is a worst-case scenario Brexit that the Bank of England so fears, surely it will be better placed to deal with the consequences if it is doing so from a higher base, and with more room for manoeuvre?
Hope that an increase is nigh
The Bank of England will be aware of all this, yet have decided to hold fire, and maintain their dovish approach (for now). The counter-arguments in their favour, of course, are well-known – and valid, too. Clearly, with rising levels of household debt, there is reluctance to inflict higher costs on borrowing. House price growth is slowing too, which won’t be helped by a rates increase (which would make mortgages more expensive, and thus stifle demand). And indeed, against a backdrop of Brexit uncertainty, the risk that tightening could augment a dangerous slowdown in consumer spending (as a result of reduced access to cheap credit) is ever-present.
Hard decisions have had to be made, and, for the most part, they have been understandable. But the nature of economics is such that there are no perfect solutions, and it is a constant weigh-up of pros and cons. And these ‘cons’, quite simply, have been disproportionately shouldered by one specific demographic: savers. The very people we should be encouraging if we are to be a nation who lives sustainably within its means.
Fortunately, a majority of officials indicated that they believe borrowing costs will soon need to rise in order to bring inflation back towards the 2 per cent target. For long-suffering savers, it can’t come soon enough. We have, however, heard such sentiment before, and been left disappointed. Let’s hope this week’s musings don’t turn out to represent yet another false dawn.
Our website offers information about saving, investing, tax and other financial matters, but not personal advice. If you're not sure whether peer-to-peer lending is right for you, please seek independent financial advice, and if you decide to invest with Lending Works, please read our Key Lender Information PDF first.
Since opening our doors back in 2014, we’ve always prided ourselves on living and breathing two key principles at Lending Works: innovation, and putting the customer first in everything we do.
With the retail sector enduring its fair share of challenges, companies are looking at new ways to attract customers, and drive conversion. In an overcrowded, dog-eat-dog marketplace, with behemoths such as Amazon flexing their muscle, it’s easier said than done.
On 4 June 2019, the Financial Conduct Authority (FCA) released its new regulatory framework for peer-to-peer lending (P2P); a Policy Statement known as PS19/14. As you might imagine, it's a document which, following a three-month consultation, is a hefty read of no fewer than 102 pages.
In a difficult climate, customer acquisition and lead generation present stern challenges for UK retailers, and a great deal of marketing spend invariably gets directed towards getting feet through the door.
Over the last decade, there can be little dispute that the reputation of mainstream banks – and particularly the so-called ‘Big Four’ (HSBC, Barclays, Lloyds and RBS) – is at its lowest ebb.
The peer-to-peer (P2P) lending industry is now regulated by the Financial Conduct Authority (FCA). The regulatory framework has been designed to protect customers and promote effective competition.
Last week we took stock of the labour market, with the latest Office for National Statistics (ONS) data showing that the tide may be beginning to turn on Britain's so-called 'jobs miracle'. Unemployment ticked up to 3.9 per cent for June to August (an increase of 0.1 per cent), with the number of people in work falling by 56,000.
Whenever discussion turns to Britain’s misfiring property market, the words ‘stamp duty’ are seldom far away. Indeed, over the past two decades, it’s been something of a political football – one which has had a profound impact on both housing transactions, and the coffers at the Treasury.
In recent months, it’s been interesting to observe the reception to Greta Thunberg, the 16-year old climate change activist who has been afforded some high-profile forums. The impassioned viewpoints she has shared have earned her legions of fans, albeit no shortage of detractors too. In particular, a speech at the United Nations climate change summit stirred fractious debate.