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.
Why the time is right for the Bank of England to hike rates
As the Monetary Policy Committee (MPC) prepares to assemble for next week’s August meeting, many sceptics will be feeling that familiar sense of ‘here we go again’. Having dropped stronger-than-average hints that there would be a rate hike back in May, the Bank of England opted to hold fire as a stream of negative Q1 economic data piled in at the 11th hour.
With growth of just 0.1 per cent reported for the three-month period (at the time – since upgraded to 0.2 per cent), Mark Carney and his fellow doves on the MPC at least had some justification for their apparent last-minute change of heart. Nevertheless, the Governor has since expressed his ‘greater confidence’ that weak Q1 performance was down to the so-called Beast from the East, and that the economy is on the up. Such a school of thought has been backed up by the numbers too.
Growth for Q2 looks set to be a much-improved 0.4 per cent according to the CBI’s growth indicator, retail sales have rebounded, Britain’s job machine has pushed employment levels to new record highs and the service sector remains a powerhouse. Vindication, and a reason to press on with a base rate increase, you might think? Not so fast…
The inflation/wage conundrum
Last week, the pound plummeted as news filtered through from the ONS that inflation for June came in 20 basis points lower than expected at 2.4 per cent. Suddenly, from being rated as odds-on, the market deemed a rate hike highly doubtful – despite the fact that such an inflation rate still comfortably exceeds the Bank’s ongoing target of 2 per cent.
The blow was compounded by news on wage growth, which, despite an employment rate of almost 76 per cent, was reported as falling for the second month in a row. It defies one of economic theory’s pillars – the Phillips curve – which states that as the employment market tightens, so too wages must rise as the demand for workers increases (and vice versa). Yet despite a steady trend of reduced unemployment in the UK over the past few years, significant pay rises have been elusive for the majority of the workforce. There are a number of theories attempting to explain this, but the fact remains that the post-recession squeeze on households continues to endure.
And it is with this in mind that many experts believe Carney and Co will once again change tack next week and show savers the red card. Yet it is our profound hope that this will not be the case.
Now or never?
At the last meeting in June, chief economist Andy Haldane joined regular hawks Michael Saunders and Ian McCafferty to leave the vote more delicately poised at 6-3 in favour of holding. So, it will just need two other members to switch sides for rates to reach their highest level since March 2009. However, McCafferty will be leaving his post in September, and it is believed that his replacement, Jonathan Haskel, will likely err on the side of the doves in future votes. Yet it isn’t just a personnel change which adds to the imperative of this summer’s rate decision. From a purely economic standpoint, the question becomes ‘if not now, then when?’
The economy, on balance, has gained momentum, and even the issue of Brexit uncertainty is questionable as a deterrent for pulling the trigger. Most people expect an orderly withdrawal agreement of some kind to prevail, but even if this isn’t the case, having greater headroom in the event of a downturn is essential for any central bank.
And while it may be a blow for some – particularly those with variable rate mortgages – the reality is that there are far more savers in this country than borrowers, and it is high time for some rebalancing. Let’s also maintain perspective about the impact if rates were to go up by 25 basis points. In historical terms, that is not very much, and a base rate of 0.75 per cent is still near record lows for the UK. November’s rate hike is proof that borrowers, on balance, should be able to cope too, with there being an absence of reports that this decision had material, widespread negative ramifications on household debt. On the flip side of the coin, it could put the wind in the sails of savers who continue to see their money fall in real terms.
The peer-to-peer lending perspective
Our neutrality in terms of the way we view borrowers and lenders is not affected in expressing hope that rates increase next week. We do not have any skin in the game in terms of profitability; rather it is our belief that a recalibration is overdue. Although susceptible to market forces, the rates we set for borrowers (and lenders) are not directly affected by base rate movements. Indeed, borrowing costs for our customers will remain competitive regardless, given our lean business model and new initiatives to deliver instant, affordable credit. Our lenders, in turn, could expect to see gains as demand for our loans rises.
Yet it isn’t just our customers who stand to benefit. The long-term health of the UK economy is close to our heart, and it is our belief that subsisting on near-zero interest rates is a long-term plan which is bound to come unstuck at some point. Even in a mixed economic climate still bearing the scars of the financial crisis, there are surely more reasons to dip a toe in the water than not. And in such imperfect times, it should be a strong enough case for the Bank to act. If they let this opportunity slip by, it will deliver yet another hammer blow to disgruntled savers – and quite possibly the MPC’s credibility too.
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.
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.
For all the resilience the UK economy has shown, there is no doubt that this year's ISA season is set against a backdrop of uncertainty. Whatever the pros and cons, Brexit, and a lack of clarity on what our future economic relationship with the EU will look like, has left us at a crossroads.
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.
In recent years, we’ve grown accustomed to seeing the UK budget deficit beat expectations each month. Indeed, as recently as January, there was actually a surplus (ie: the level of tax revenue received by the Exchequer exceeded the total spent by the Government on everyday costs such as welfare and public services) – the largest on record for the month of January.
The financial crisis is a bitter memory of what can go wrong when regulators lose control of markets. It seems hard to fathom now, but a little over a decade ago, buyers could acquire mortgages to the tune of 125 per cent of the home’s value (the Northern Rock Together mortgage being one of the most infamous), with only the most lax affordability checks standing in their way.
In the aftermath of the financial crisis back in 2008/09, the Bank of England (BoE) had considerable headroom in terms of monetary policy, and - rightly - it made full use of it.