Loans and Finance

Loans and Finance

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News and information about loans, money, debt, finance and business issues.

Friday, August 27, 2010

Growth

As ever, figures provided by the ONS have had to be revised.

This time the figures for growth in Q2 2010 have been revised upwards, from 1.1% to 1.2%. This is the fastest quarterly growth in the UK since 1999. However, the economy had contracted by more than 6% before this.

A large part of this growth is made up of inventory building by companies, therefore it is presumed not necessarily to be sustainable.

Ed Balls, a Labour leadership candidate, used the revised figures to warn of an economic hurricane hitting the UK if the government cuts public expenditure.

The government, on the other hand, notes that the improved growth figures give them a sound base from which to cut excess public expenditure.

Doubtless both are right, but both will also be proven wrong.

Such is the nature of economics and politics!

Wednesday, August 25, 2010

14% Mortgage Rates? The Silly Season Continues

Further to my recent article about 8% interest rates being talked up by a story drought riven media, it seems that further "silliness" abounds; there is now talk about 14% mortgage rates within two years.

Darren Cook, of Moneyfacts, is quoted in The Telegraph (which should know better than to spread nonsense like this):

"It is unlikely that the banks will have fully repaired their balance sheets before 2012 and even more likely that some of the banks will have not repaid their debt to the taxpayer. If this warning of a Bank Rate at 8 per cent does materialize and banks retain large margins on lending, it will not be a surprise to see mortgage rates go up to 12 or 14 per cent.

I would hate to think what overdraft, credit cards and personal loan interest rates will look like at the same time
."

Interest rates will not hit 8% in two years...PERIOD!

The economy is fucked, and will remain weak for some considerable period of time.

This is a scare story being whipped up by the media, who have nothing else to write about.

Monday, August 23, 2010

8% Interest Rates?

There has been some "fevered" speculation in the media, based on a forecast from Andrew Lilico chief economist at the Policy Exchange think tank, that UK interest rates may hit 8% within the next two years.

Evidently the summer "silly season" for reporting is still with us.

Aside from the fact that economic predictions are as about as reliable as the UK weather forecasts, I personally do not see this scenario happening.

The theory is that the UK will enter a period of boom, that will in fact run out of control, thus necessitating the Bank of England to aggressively raise rates in order to kill off the inflation beast.

Given the fact that housing market is currently running out of steam, and that the government is going to cut public spending (and by definition public sector jobs) extremely aggressively, an out of control boom in just two years is fantasy.

Those savers who have been dreaming of such a fantasy coming true should also bear in mind that the banks most certainly will not be paying 8% rates to savers in two years, even if the fantasy of 8% interest rates comes true.

For why?

Banks never pass on full rate changes to savers, as they need to take their cut on the margin between the rates they use for lending and saving.

As noted, this is a fantasy story whipped up by the media during the traditional "real news drought" of the "silly season".

Friday, August 20, 2010

Greek Economy Continues To Deteriorate

As most people in Europe enjoy their holidays, the Greek economy continues to plunge new depths.

A report by HSBC notes that Greek banks had lost 8% of their entire deposit base in the five months to May.

Savings are being used to get by, and the Telegraph notes that the Athens Chamber of Commerce has warned that its members are in "dire straits", with a majority facing a liquidity threat.

The European Central Bank (ECB) has now loaned Greece a record Euro96BN as at July. The question on everyone's lips is how much more will it be able to lend, and what happens next?

Once people return from holiday, and the financial markets face reality, there will be a reckoning.

The Greek economy is now in a tailspin, once the markets "post holiday" wake up to this fact the rest of Europe (those in the Euro) will feel Greece's pain.

Thursday, August 19, 2010

Mortgage Drought Continues

The Council of Mortgage Lenders (CML) report that the total amount of money lent in new mortgages stood at £13.6BN in July.

This represents a fall of 3% when compared with July 2009.

The banks, despite returning to profit, have tightened their mortgage lending criteria.

Tuesday, August 17, 2010

Beware Food Price Inflation

The Office for National Statistics (ONS) have released figures that show that food prices have risen by 3.4% over the last year.

This has prompted Mervyn King, the Governor of The Bank of England, to express some surprise over the size of the rise.

He should not read too much into the numbers, especially as they are unexpectedly high, ONS figures are notoriously unreliable and we may well see contrary ones next month.

Monday, August 16, 2010

China Rising

China has now overtaken Japan as the world's second largest economy, as per data relating to Q2 2010.

Japan's GDP for that period was $1.288 trillion, whilst China's was $1.337 trillion.

According to Goldman Sachs, China will overtake the USA as the world's largest economy by 2027.

Friday, August 13, 2010

Germany Motors Ahead

The German economy surged by a record 2.2% in Q2 of this year. That is the fastest rate of growth since unification.

However, it should be remembered that this is growth from a very poor 2009. In 2009 the economy shrank by 4.9%, the worst performance since World War II.

Wednesday, August 11, 2010

Online Fraud

Despite the repeated assurances by banks that their online banking systems are secure, it would seem that reality is proving these "assurances" to be less than sound.

The Press Association reports:

"British online banking customers have fallen victim to a sophisticated attack by cyber criminals who have stolen hundreds of pounds from their accounts, an internet security company has warned."

You have been warned!

Tuesday, August 10, 2010

Trade Deficit Improves

Unexpectedly good news relating to the trade deficit has been reported by the Office for National Statistics (ONS).

Britain's trade deficit narrowed in June to £7.4BN, as a result of exports rising at four times the pace of imports.

However, the country still has a trade deficit and the figures are somewhat out of date (ie they are June's). Additionally, the ONS is not renowned for its accuracy and it is likely the the figures will be revised at some point in the future.

As I have noted before, using out of date inaccurate figures to run the economy (or even to try to make people "feel good") is questionable to say the least.

Monday, August 09, 2010

Credit Task Froce

It has been announced that the CEOs of the UK's leading banks will lead a new taskforce, to help boost the flow of credit to small firms.

The ever "popular" British Bankers' Association's has set up a new group to assess credit demand from firms, and put forward recommendations to boost funding in the banking sector and aid recovery.

The media omnipresent BBA chief executive, Angela Knight, claims that the taskforce (to be chaired by BBA and HSBC chairman Stephen Green) would look to address "pinch points" in the system as recovery and the demand for working capital gradually takes hold.

The taskforce will report its initial findings to Chancellor George Osborne, in early October.

It strikes me that this is likely to be as effective as putting foxes in charge of the hen house, and is nothing more than a "sop" (in the manner of Edward VIII's "something must be done") to try to convey the image that the banks are "concerned".

Friday, August 06, 2010

FSA Investigate Coutts

In its dying days, the Financial Services Authority (FSA) has decided to try to show some teeth.

RBS has announced that the FSA has launched an investigation into Coutts (the Queen's bank which is also, ironically, part of RBS the "people's bank"), over the sale of AIG bonds in the years before AIG's collapse.

RBS issued the following statement:

"In July 2010, the FSA notified RBS Group that it was commencing an investigation into the sale by Coutts & Co of the ALICO (American Life Insurance Company) Premier Access Bond Enhanced Variable Rate Fund to customers between 2001 and 2008 as well as its subsequent review of those sales."

The FSA investigation may be of interest to Keith Mills, who has mounted a high profile publicity campaign against Coutts, including placing billboard advertisements criticising the bank close to its headquarters. He also has launched court proceedings against the bank.

Thursday, August 05, 2010

Beware The Hype of The Double Dipper

There are fears, being stoked by the media, that Britain may be heading for a double dip recession.

The service sector, that accounts for the bulk of Britain's economic output, showed that its growth fell to its slowest since the end of the recession last year.

The blame is being laid at the feet of the government, for cancelling public sector contracts.

All very well, but the size of the public sector debt and the fact that certain service sector companies were milking the government for every penny that they could get over many years is reason enough for the government to call a halt to the free for all.

The reality is that the UK has relied for far too long on the public sector to prop up the economy.

Economies cannot survive forever by merely passing one bundle of money from one part of the economy to the other, money must be earned from productive industries and services that sell outside the economy.

Wednesday, August 04, 2010

Interest Rates May Rise

Despite Mervyn King, Governor of The Bank of England, stating last week that interest rates are likely to stay low for quite sometime, two former colleagues have contradicted him.

Sir John Gieve, an ex-deputy Governor, and Charles Goodhart, a previous member of the Monetary Policy Committee addressed Fathom Financial Consulting's Monetary Policy Forum.

The Telegraph quotes Sir John as saying:

"I am expecting a recovery – when that is strongly established I'd expect rates to start rising faster than the market currently expects. I wouldn't be at all surprised to see interest rates at 2.5% a year from now."

Mr Goodhart was worried about the effects of food price inflation on the overall economy.

"We're going to have subdued growth for five or six quarters but a temporary increase in inflation. What do you do when inflation is still above the upper limit when the economy is looking extremely soggy?"

Were the MPC et al always 100% accurate with their forecasts, then we would not be in the mess that we are in now. Therefore, these predictions should be taken with a large pinch of salt.

Tuesday, August 03, 2010

The Good, The Bad...

In a rather amusing display of "irony" the results for the two offshoots of Northern Rock (the once proud bank that, owing to its greed and stupidity, self imploded at the start of the financial crisis) have confounded expectations and their nicknames.

Northern Rock (Asset Management), the "bad bank", which houses the mortgage portfolio posted a first-half pre tax profit of £349.7M.

Meanwhile Northern Rock, the "good bank", which houses its savings accounts and undertakes new mortgage lending posted a £142.6M pre-tax loss.

How ironic!

Monday, August 02, 2010

Bank Bashing

Citywire reports that the new chairman of the Treasury Select Committee, Andrew Tyrie, has told the Times that bank-bashing by ministers is 'unconstructive'.

What planet does this man live on?

Banks have failed the British people and the British economy. They continue to offer lousy service, and treat their customers with contempt.

Until they improve their ways, "bank bashing" is exactly what is required.