Finance Matters

Posts Tagged ‘Bank of England’

UK government debt rose to over £1 trillion for the first time in December, despite a fall in public sector borrowing.

Excluding bank bailouts and other financial interventions, public sector borrowing fell £2.2 billion to £13.7 billion in December according to the latest figures from the Office for National Statistics.

This was lower than City forecasts of £14.9 billion.

However, net debt increased from £883 billion in 2010 to £1,003.9 billion in 2011, representing 64.2 per cent of GDP.

The government has reduced borrowing by increasing taxes and cutting spending, with December representing the fourth consecutive month when borrowing has declined.

On average borrowing has fallen by around 5 per cent year on year over the past four months, compared with an average increase of nearly 7 per cent in the 10 years to the 2010-11 financial year, according to George Buckley, an economist at Deutsche Bank.

This has led to optimism among some economists than public sector finances may improve beyond the Office for Budget Responsibility expectations at the time of the Autumn Statement in November.

Earlier this week Adam Posen, a policymaker at the Bank of England also suggested that the UK’s economic outlook had improved, helped by the
second round of quantitative easing in October.

However, Mr Posen said that the improvement was not sufficient for the Bank’s forecasts to be upgraded.

After speaking at Nottingham Trent University, Mr Posen said: ‘Things are a little better … But that’s not enough good news in my world to suggest we have solved the problem, though I am going through the forecast round with my colleagues.’

The Bank of England expects the economy to grow by less than 1% for most of 2012, with inflation expected to fall below 2% at the end of the year.

HSBC has announced plans to lend more than £15 billion in mortgages this year, with £3m of this ring-fenced for first-time buyers.

This should provide mortgages for up to 150,000 home buyers during 2012, including 27,000 people buying their first home.

The sum amounts to 11 per cent of all the mortgage borrowing predicted for 2012 and represents HSBC’s biggest ever share of the mortgage market.

Martijn van der Heijden, head of lending at HSBC, said that the promised investment “demonstrates HSBC’s commitment to continuing to help people move up or indeed take the first step on to the housing ladder.”

Although analysts have suggested that the economic downturn will cause lenders to tighten their mortgage criteria, HSBC said it had no plans to do so.

Its promised investment will come under its current lending strategy which is designed to ensure that new lending is in the best interests of customers and shareholders, the bank said.

The latest Bank of England Trends in Lending report suggests that there will be an increase in first-time buyer mortgage deals in the first quarter of 2012.

This will help borrowers with high loan-to-value ratios and could allow prospective buyers who are currently trapped in rental properties, to purchase their first property.

The first-time buyer share of the market has improved slightly since autumn 2011, when it hit its lowest level for nearly three years.

The latest data from the Council of Mortgage lenders reveals that first-time buyers took out 17,300 loans, worth £2.1bn, in November 2011, a 4 per cent increase by volume and 5 per cent by value compared with the previous month.

The withdrawal of the stamp duty concession in March is expected to help fuel an increase in first-time buyer activity in the first quarter, with prospective home owners hurrying to purchase their first property before the deadline.

The rate of Consumer Prices Index (CPI) inflation fell to 4.2 per cent in December, from 4.8 per cent in November, according to the latest figures from the Office for National Statistics (ONS).

This is the third consecutive month that inflation has fallen and December’s figures represents the biggest monthly fall since April 2009.

Inflation is now at its lowest level since June last year and many economists are predicting a continued decline throughout the year.

In November, the Bank of England predicted that inflation would fall below the Government’s inflation target of 2 per cent by the end of this year.

Retailers’ attempts to generate sales by cutting prices in the run-up to Christmas have helped to push inflation down.

The price of clothing and footwear fell by 2.8 per cent between November and December and fuel prices fell by 1.1 pence a litre, although food prices increased by 1.4 per cent.

Although the fall in inflation will help to ease the strain on household incomes, analysts expect consumers to continue to control their spending in the face of continuing uncertainty over jobs and tightening credit conditions.

While there was good news on inflation today, a worrying economic forecast by the Ernst & Young Item Club suggests that the UK economy has fallen into a ‘technical’ recession due to the eurozone crisis and rising unemployment.

The Item Club has cut its GDP growth rate forecast from 1.5% to 0.2% for 2012 and expects unemployment to rise by a further 300,000 this year, to just below three million people

It does not expect the UK economy to recover until CPI inflation drops to 2 per cent late this year.

The Chartered Institute of Personnel and Development expects unemployment to remain above 2.5 million until at least 2016.

The Post Office has strengthened its range of savings products with a reward saver account offering 3 per cent interest and a notice period of only 30 days.

If savers make a withdrawal without giving 30 days notice, they will lose 30 days interest on the amount withdrawn.

The interest rate includes a 1.25% bonus for the first year.

Like all Post Office products the account is covered by a ‘savings promise’, which means that any Bank of England base rate changes until January 2013, will be mirrored by the interest on the account.

Customers can access the reward saver account at Post Office branches, by phone or by post.

Post Office Director of Savings and Investments, Richard Norman, said: “The new issue of the Post Office Reward Saver account further demonstrates our dedication to branch savers.

“The best buy rate will help more people make their money work harder for them.”

The account reflects an increasingly competitive savings market.

The latest survey by Moneysupermarket.com suggests that average savings rates for easy access accounts have increased by 0.23 per cent to 2.97 per cent in the last year.

The figures are based on the average interest rate paid by the top five easy access accounts.

ISA rates have also increased, with the average rates paid by a one year fixed rate ISA now 3.17 per cent compared with 2.99 per cent in 2011.

Bonds have followed a similar trend with the average top five rates for one year and two year fixed rate bonds based on £10,000 increasing by 0.46 per cent.

Meanwhile, mortgage and loan rates have fallen over the past year.

Kevin Mountford, head of banking at Moneysupermarket.com , said: “Savers have suffered from a low base rate environment for almost three years so it’s encouraging to see banks and building societies increasing competition to attract savers, offering attractive headline rates compared with a year ago.”

Marks & Spencer Money is offering borrowers a personal loan at a rate of just 6 per cent.

This represents the lowest rate since 2008 when Moneyback Bank was offering 5.8 per cent, while just one year ago Tesco Bank offered the lowest loan rate, of 8.4 per cent.

Marks & Spencer Money’s 6% deal is for personal, unsecured loans of between £7,500 and £15,000 for a period of one to five years.

Tesco Bank is not too far behind M&S Money after cutting its rate from 6.4 per cent to 6.1 per cent on loans of between £7,500 and £15,000 with a term of between one and ten years.

Yesterday the Co-operative Bank cut rates on all of its personal loans by one per cent for existing customers who hold Privilege and Privilege premier account holders.

This means that these customers can now borrow between £7,500 and £14,999 at 6.9 per cent, while the interest rate on loans between £15,000 and £25,000 has been cut from 8.9 per cent to 7.9 per cent.

Personal loan rates have been on a downward trend since the start of the New Year, with Santander and Barclays also announcing lower rates.

In related news the Bank of England has revealed that it expects UK banks to toughen their loan terms for both individuals and businesses because of difficulties in wholesale funding markets and the uncertain economic outlook.

In its fourth-quarter Credit Conditions Survey the Bank of England suggested that lenders would introduce more stringent credit-scoring criteria for mortgage applications and tighten covenants on business loans.

This means that homebuyers, who already struggling to raise the large deposits demanded by lenders, are likely to find it even more difficult to secure a mortgage in the coming months.

The supply of mortgages has plummeted since the onset of the international banking crisis in 2007.