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News Items 2000-2003 Archive
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New Directory Enquiries Numbers
|Company:||Number:||Connection Cost:||Cost Per Minute:|
|Dir. Enqs. UK||118800||Nil||19p|
|11 88 88||118888||Nil||20p|
|11 88 66||118866||49p||58p|
Note: The One.Tel number is free for One.Tel customers until the end of 2003.
Remember that if you allow the directory service operator to connect you, the cost will increase considerably, because the operator will continue to charge you for the call duration at their "per minute" rate. Plus you won't necessarily get told the number that you asked for in the first place. If you get put through to a freephone number by Yellow Pages for an hour, you'll get billed £24 for the privilege! Better to hang-up and dial it yourself.
Money Surgery says why not use the phone book, or, as you're on the Internet right now, try using a search engine, like Google to look-up the company, or try BT's Free Online Directory Service which allows up to 10 searches per day. It's surprising how habit-forming these directory enquiries calls can be and how much they can mount-up on your phone bill.
"Got your number" they shout in their adverts. Now you've got their number.
(Monday 18th August 2003)
Members of the Staffordshire Building Society will get windfalls of between £100 and £2,500, if the proposed merger with Portman Building Society takes place. Customers with at least £100 in savings or mortgage debt, between 23.07.03 and 31.12.03, will qualify. If you're a member of the Staffordshire and you're eligible to vote, you'll be sent a booklet this week outlining the merger deal and providing details on how to vote.
Carpetbaggers will be vindicated once more as another mutual institution bites the dust. Just £100 of savings would have qualified for a windfall, showing that there's life in carpetbagging still, contrary to our previous article of 28.07.03, below. As part of a balanced diet, of healthy debt control, carpetbagging really can provide enormous nutrition for your finances. Carefully selected investments in mutual companies, of a minimal £100 and over the long term can provide healthy interest plus a whopping bonus if the institution converts or gets taken over. It remains the only gamble worth considering, for the financially fit or those on a debt diet.
(Saturday 16th August 2003)
UK shares ended the week at their highest levels this year. The FTSE-100 finished up at 4247 after touching 4266.4, its highest since last August. Other indices hitting highs for the year were the FTSE-250, at 5513.5, the All-Share, at 2094.73, and TechMark, at 896.48.
Many private investors will be thinking back to 2001 when the FTSE-100 was close to 3000, and wishing they had invested more back then, while at the same looking further back to the end of 1999 when the FTSE-100 was close to 7000 and realising just how far shares have to go.
(Monday 11th August 2003)
For those of us likely to become university students soon, money issues are likely to be a dominant feature of their new life. Spending on accommodation, books, travel and entertainment is sure to swallow all of the £4,930 a year student loan, in fact the National Union of Students report that 9 out of 10 students have to work to supplement their loan.
The NUS suggest that students try to fit-in working outside their busiest studying periods and to consider the balancing act between work and studies so that neither is compromised. They also suggest writing down your essential expenditure each month, on things like food, bills, travelling costs, and then dividing what's left over into weeks to help you control daily spending. Choose your bank carefully too, say the NUS, and find out what the deal is for repaying that interest-free student overdraft because you may end up with a huge interest rate once you leave college.
Check that you have applied for everything that you are entitled to. The Student Union will have expert advisors available who can tell you whether you are eligible.
Other sources of income can be found. Try the following contacts:
NUS, 020 7272 8900 or www.nusonline.co.uk,
Educational Grants Advisory Service, 020 7254 6251 or www.egas-online.org.uk,
Scholarship Search UK at www.scholarship-search.org.uk
(Monday 28th July 2003)
Standard Life has rejected a fresh bid to turn it into a public company, a move that could have yielded average windfalls of £2,500 per customer.
The Edinburgh insurer said that after taking legal advice, it was not, in fact, bound to hold a special meeting on its mutual status in response to a member's petition.
Carpetbagger, David Stonebanks' resolution is thought to have been at fault in it's wording, although he has pledged to continue his campaign.
At the Surgery, many of us remember the halcyon days when carpetbagging was a great hobby. These days, running rings around debt is a far more wholesome activity.
(Thursday 19th June 2003)
We are not spending that much these days according to new retail spending figures, prompting hopes for another rate cut next month. Figures for May show a sharp drop over the previous month after economists had pencilled-in a modest rise. Experts fear that consumers are turning away from the shops, the very activity that is keeping our economy alive and kicking.
So what kept us away? Was it the wet weather or the warm weather? Was it the lack of price cuts or was it all simply a blip? At the Surgery, we enjoy spending money that we have saved. Many Patients have gone through hundreds of dark days, saving every penny to get rid of their debts. When their debt shackles have become loose the opportunity to spend a little of their own money is something that is savoured. Yeah, spend it, but only when it's your own money and not borrowed money. With the Surgery, you can discover ways to beat debt then enjoy your shopping sprees ...and your freedom.
(Friday 17th May 2003)
The North of England is the richest region in England and Wales according to a new survey measuring "real" local incomes. The survey undertaken by Barclays Private Clients takes into account the local cost of living and balances the scales to identify people's true income.
Top of the pile is Tatton in Cheshire with a real average income of £41,506, with Sheffield Hallam second at £41,289 and Kensington/ Chelsea third at £40,951. Although wages were higher in the South-East and London, the high costs of living cancelled out many of the gains, with high house prices being a major factor. Of the top 50 areas in the survey, 12 are in the North-West, 9 are in the South-West, 7 in Yorkshire, 6 in the West Midlands, 5 in the East Midlands, 4 are in London, 3 in the South-East, 2 in Wales, with one each in the North-East and the East.
(Thursday 1st May 2003)
House price inflation stopped dead during April. Nationwide Building Society said that the average price of a property remained unchanged at £122,748, while the annual rate of house price inflation fell to 22.2% from 26.2% the previous month.
Alex Bannister, Nationwide's group economist, said: "House prices remained unchanged during the month of April as the trend towards slower house price inflation continued. House prices over the last three months have risen at their slowest pace since December 2001 and the market is clearly less frenetic than April last year when prices jumped 3.3%." But he said there was no evidence of a "damaging correction" at this stage, and added that Nationwide expected price growth to return to 0.5% to 1% during the next few months, although it would remain below the monthly average of 2.4% seen between April and September last year. The building society said the number of sales had also slowed, with 123,000 houses changing hands during March, down from 131,000 in December last year. It said the slowdown appeared to have been driven by a sharp fall in the number of first-time buyers entering the market.
Mr Bannister said, "In the first quarter of 2003, the monthly average number of first-time buyers dropped to 27,000, more than a quarter down on the same period of 2002. If this trend persists for the rest of the year it will take the number of first-time buyers to around 400,000. This would be the lowest level since mortgage markets were deregulated in the early 1980s." He said the fall was largely due to affordability constraints, as well as an increase in the average age at which people buy their first home as a result of more people going into higher education. Mr Bannister added: "A sustained period of lower house sales and house price inflation looks a more likely outcome - even if this appears to be a return to the sort of housing market cycles seen back in the 50s."
(Sunday 13th April 2003)
Lost in the Blitz of news from Iraq, this week's Budget came and went like a cheap firework on a damp November night. Those who actually listened to the chancellors speech and the subsequent reaction must have wondered "What Budget?", so devoid was the (short) speech of any real surprises or clear philosophy.
Anyway, here are the main features:
(Sunday 30th March 2003)
There's a great new mortgage product on the market from Nottingham Building Society. As long as you lay down 25% deposit, you can get a 1.88% discount off Nottingham's standard variable rate of 5.44% for 3 years. At the moment, that's 3.56%. There's also a free valuation and a £250 Cashback. Click Nottingham BS for full details or call the Nottingham on 0115-948 1444
(Sunday 13th April 2003)
The best savings account is the one that offers immediate access and the best interest rate. Since their introduction in 1999, the Mini-Cash ISA account type has consistently provided the market-leading interest rates on our Best Interest Rate page. If you have money to save and your debts are taken care of, look at opening a Mini-Cash ISA in the first instance but check the terms and conditions of each account so that your happy with the rules for access to your cash. Check out our How to Understand ISAs Page for all the details.
For those of us who have opened a Mini-Cash ISA this tax year, don't forget to use up all of your £3,000 allowance before 5th April, next Saturday, the end of the current tax year, and coincidentally the night of our MoneyOscar Awards. Rates may have gone down alarmingly over the last year on Cash ISAs but remember, they're still the best "safe" High Street investment for the foreseeable future.
(Thursday 27th March 2003)
Oil companies and car makers are backing the view that hydrogen will be the successor to oil in the coming decades. The drive towards a hydrogen future was given a real boost when President George Bush unveiled a development plan, worth 1.7bn dollars, in his State of the Union address, to help the US lead the world in developing clean hydrogen-powered automobiles.
Now just weeks after that commitment comes a significant partnership between General Motors (GM) and Shell to provide a taste of the future. GM says it will provide a fleet of six fuel-cell Zafira mini vans at 1m dollars each for people to test drive while Shell will install hydrogen pumps at one of its Washington gas stations. The companies say they expect about 10,000 people to ride in the vehicles over the next two years. Shell Hydrogen chief executive Donald Huberts said his company wants to demonstrate the practical and everyday use of hydrogen fuel.
In hydrogen vehicles, an electric motor powers the wheels. A chemical reaction inside a unit called a fuel cell - usually between hydrogen and oxygen - creates electricity for the motor. The only emission is water vapour - although depending on how the hydrogen is generated, some air pollution may occur during the production process. Some believe with the right commitment and investment, hydrogen cars could be ubiquitous in as little as 10 years.
At a time when the price of oil is slipping ever higher, an alternative fuel is going to find favour very easily. The crisis in Iraq has provoked many to comment that the American-led forces are motivated by the need to protect access to Iraqi oil. The same people are likely to welcome any alternative fuel that reduces the worlds dependance on oil if that prevents such conflicts.
(Thursday 20th March 2003)
Stamp prices are set to increase by 1p from May after a row between the Royal Mail and the industry's regulator was settled. The cost of posting a first class letter is set to increase to 28p, while a second class stamp will rise to 20p. The price hikes will generate around £170 million of extra revenue in a year.
The price rises, the first for second class stamps since 1993 and since 2000 for first class, have to be agreed formally by Postcomm, but they are expected to come into effect on 8th May 2003. The Royal Mail said Postcomm had made major changes to its three year price control proposals, although it was still worried about the future regulatory process and the protection of the universal postal service.
Adam Crozier, Royal Mail's new chief executive and former English Football Association boss, said, "After 11 months of detailed discussion with Postcomm we have seen real improvements to the package on the table and we are now able to agree to the new deal. We should now be able to get on and implement the modest 1p rise in postage prices we need. The original proposals left a £460m hole in Royal Mail's finances, rather than the £170m annual benefit from the penny price increase. The control now on the table corrects this." The extra revenue will help stem Royal Mail's £1 million a day losses.
(Tuesday 18th March 2003)
The underlying rate of inflation has reached its highest level for almost five years. Figures from the Office for National Statistics (ONS) showed underlying inflation rose 0.3% during February to 3%. The increase , which was higher than City forecasts, means inflation has now been above the Government's 2.5% target for four months in a row. It was last higher in May 1998, when the figure reached 3.2%. Headline inflation, which includes mortgage interest payments, rose 0.3% to 3.2%, the strongest rate since September 2000.
The ONS said the inflation increase was largely due to the post-January sales recovery in prices being steeper this year than last, particularly in women's clothing. Prices for seasonal vegetables also rose in February, reflecting supply shortages. Higher petrol and housing prices have also had an upward impact on the inflation rate.
(Monday 10th February 2003)
The FTSE-100 Index is worn-out, having hit a seven-year low today as fears of a looming conflict in Iraq keep investors away. The Footsie closed down 55.6 points at 3436, its fifth consecutive day of falls and has lost more than 50% of its peak of 6930.2 on December 31, 1999.
Dealers do not doubt a US-led war on Iraq will be launched, but the timing and the extent of the divisions between Western governments remain an issue and are poised to exacerbate economic uncertainty and push up oil prices.
(Thursday 6th February 2003)
The Bank of England today cut its base rate to 3.75%, a drop of 0.25%. It is the first cut since November 2001 and came out of the blue. Many homeowners with mortgages linked to standard variable rates should see their payments cut by a similar margin as banks and building societies pass on the lower cost of borrowing.
Interest rates in Britain are at their lowest levels since 1955 and their lowering reflects the concerns the Bank has about global economic stagnation and depressed stock market indices. Lets hope all the lenders pass on the full cut to borrowers...
(Wednesday 22nd January 2003)
We are living in a credit bubble that is destined to be burst or at least puncture in the near future, according to the FSA. This morning, the Financial Services Authority, has warned that we are borrowing too much and saving too little. The FSA estimates that 10% of our spending is financed by debt, so we're living a long way beyond our means.
According to the FSA, low interest rates, low unemployment and booming house prices mean that, in the short term, we have easy access to credit and can service larger amounts of debt. However, the FSA is worried that lower economic growth, slowing or falling house prices, and the possibility of higher interest rates will leave many of us struggling to pay our way. The current rate of growth is rapid and unsustainable and, although credit arrears and defaults are low at present, the FSA expects them to rise.
The nitty-gritty of the FSA's report is based on facts and figures that are quite startling. The bubble that we are living in used to be like a bubble-gum bubble that was three or four inches wide on the face of our collective finances. We were used to that, here at Money Surgery but now, the bubble is from ear to ear. It is like the biggest bubble-gum bubble blown in any schoolyard in Britain. And it's threatening to burst all over our faces, our hair and our lives.
Check out the figures:
In the year to November 2002, residential mortgage borrowing rose by 13% to yet another record high of £663bn. That was £663bn! Consumer credit (including personal loans, overdrafts, credit and store cards) rose even more rapidly - by 15.4% - to hit an all-time high of £155bn. Gulp.
During the first nine months of 2002, the Council of Mortgage Lenders calculates that we borrowed £88.2bn for house buying, up 20% on the same period in 2001 and that was a hot period by any standards. We borrowed a further £30.5bn for re-mortgages and equity withdrawal, almost double 2001's figure of £16.9bn. So we are taking out the equity gained in our houses. If anything comes to upset the economic apple cart, we could go from housing boom babies, basking in the glow of unheard-of personal wealth to negative equity children, owing more on our homes than they are worth, in an environment where jobs are scarce, bills are mounting and times are hard, all in a matter of months.
It has happened before too: Many housing indicators are close to or already above the levels reached during the 1989-92 house-price crash. According to the FSA, areas of rapid, above-average house-price growth, including London, are most at risk. Mortgage repossessions and arrears are low but, disturbingly, our credit card arrears have been creeping up over the last three years because we prefer to default on our cards than put our homes at risk.
20% of us possess a credit card with an average balance of £2,203, with 15% having a personal loan, averaging £5,538. 15% of us have a car loan of around £4,439. The FSA calculates that 6.1m families and individuals are having problems meeting their debt repayments. Those in most difficulty were spending a staggering 31% of their incomes on repayments.
The FSA expects our ability to save in the future to be damaged by today's big mortgages and debts. As we reported below in Saving for Tomorrow, the Association of British Insurers suggests that the "savings gap" is £27bn. Then again, IFA Promotion has put this figure at close to £70bn!
Finally, the FSA is warning us that historically low inflation means that we need to adjust our expectations of returns from long-term saving and investment products. Some investors may be buying complex "high income" products without fully appreciating the extra risk that these plans involve.
(Sunday 19th January 2003)
There has been very little good news to read about personal finance for the last few years. Even here at Money Surgery, the nature of most of our articles has been of warnings, poor standards or worrying economic figures. Many articles in the press recently have mentioned the "£27 billion pensions gap" figure, which allegedly represents the difference between what we are saving and what we need to save for a comfortable retirement.
There is evidence that we're saving less than we used to as a recent survey, "British Savings Report 2" from Royal London, confirms that we've got worse since its first report in May of last year. According to the report, regular savings (including pensions, deposit-based savings, ISAs and other regular-premium investments) have fallen by a massive 40% over the last six months. Apparently, the average monthly savings amount has dropped to £203 a month from £358. Worryingly, 46% of the population don't save regularly, up from 44% in the last survey.
So what happened to the feel-good factor inspired by rocketing house prices? According to the survey, 46% of respondents feel pessimistic about the current economic climate. Has the stock market decline dampened our optimism or are we all nervous about the military build-up on Iraq's borders and the threat of terrorism? We don't think so here at Money Surgery. Consumer spending is still strong and mortgage debt and consumer credit figures keep hitting record highs every month, fuelled by low rates. Why save at 2 percent when you can borrow at 0 percent?
If you are worried about your level of debt or about saving for your future, today is always a good day to take a long hard look at your finances and make some changes. But before you increase your monthly saving, battle the debts first. Cut your bills by shopping around for mortgages, personal loans, credit cards, utility bills, home and motor insurance. Pay off your debts, starting with the highest interest rate and working downwards. Transfer card balances to a 0% or low-interest card to give yourself time. If you're not confident about financial matters and are wary of seeking "professional" advice, speak to a close friend or relative who seems most switched on about money or look at the financial press, like The Times Money section every Saturday, or financial web sites, like Motley Fool. See our Links section for the best Internet links.
Money Surgery is packed with ideas that can help you make the difference. Only once you've got your spending under control, slashed your bills and saved up some cash for emergencies, will you be ready to think about investing for your future, such as starting a pension.
(Thursday 16th January 2003)
Savers expecting their tax-free savings rates to mirror Bank of England rates have been let down by banks and building societies, according to a new report by Chase de Vere. While no-one was looking, 71 percent of banks and building societies have lowered rates on Mini Cash ISAs by more than the last Bank of England base rate cut of 0.5% since it was made in November 2001. 68 percent of TOISA providers also lowered account interest rates by more than the 0.5% over that period.
Tax-free savings account providers have not been playing fair say Chase de Vere. "Prior to the last base rate cut, providers offered rates equal to it or more", says Anna Bowes of the financial adviser firm. "It is outrageous that banks and building societies have now cut rates by more than 0.5%" she added.
To add insult to injury, most banks and building societies comply with the bare minimum required by the Banking Code when lowering rates, in that they advertise the change via branch notices or newspaper ads.
But savers are going to get some protection: From 1st March 2003, the revised Code compels account providers to inform account holders individually should the interest rate on their account fall by more than 0.5% relative to the Bank of England base rate in any 12 month period and give savers the option of transfer or withdrawal without penalty.
At the Surgery, we advocate a continual monitoring of savings account rates so that savings can be moved to accounts offering the best rates. However, account providers can only maintain good rates for a short time, so be prepared for the next move.
Check the Latest Rates.
(Saturday 7th December 2002)
Abbey Life has been fined a record £1m for mis-selling endowment mortgages. Up to 50,000 homeowners who were mis-sold mortgages by the company will now receive compensation of between £1,500 and £3,500 each.
Abbey Life said compensation would be based on "putting the customer back in the position they would have been in if they had taken out a repayment mortgage". Customers should receive letters in the next couple of days telling them if they are due compensation but will not be told the amount they are to receive until later. The company, a subsidiary of Lloyds TSB, said it was "very sorry that the situation arose". The fine was imposed by the City watchdog the Financial Services Authority who said that it would have been even higher if Abbey Life had not taken extensive remedial action. Today's fine is only the second imposed for endowment mis-selling but more are on the way. The FSA reckons 23 insurance companies face a bill of several hundred million pounds.
So far 42,000 policyholders have shared a total of £139m in compensation. Endowment mortgages have been ravaged by the collapse in stock market values in recent years. An estimated one million homeowners with endowment mortgages have received the "red traffic light letter" that warns them their insurance policies are not growing fast enough to secure an adequate return and ensure the repayment of their mortgages. Carol Sergeant of the FSA acknowledged that Abbey Life had worked hard to make sure customers received "appropriate redress". But she added: "The failings in this case are serious." Weaknesses in Abbey Life's internal controls had exposed large numbers of consumers to the risk of loss, she said. Abbey Life was closed to new business in April 2000. The fines cover a period from 1995 to 1999 but compensation payments are likely to extend back to mis-selling since 1988.
Sergeant added: "Abbey Life has voluntarily agreed to extend its review of mortgage endowment sales back to 1988, at considerable cost to itself and has also undertaken a wide-ranging review of other products. Abbey Life has, in doing so, demonstrated a high regard for the priority of the interests of its customers. Senior management has accepted its responsibilities to customers and the review now being undertaken should ensure they receive appropriate redress. Without this approach by Abbey Life, the penalty imposed would have been significantly greater."
(Saturday 9th November 2002)
The dark spectre of deflation may be unfolding in Britain leading to unemployment from which it will be nearly impossible to escape. It could be said that privatisation, marketisation, liberalisation and globalisation are about to drag us all into an economic black hole. Japan has been fighting deflation for a decade, with massive public spending programmes and real interest rates around zero. It has only just about kept going. Germany is next in line and others may follow.
The term "deflation" has usually described deliberate government strategies to reduce inflation — reducing consumer demand by raising interest rates, raising taxes etc. Deflation is now more commonly used to describe a situation where consumer demand is collapsing, prices are depressed or falling, economic stagnation has taken hold and the whole process looks unstoppable. Businesses are so efficient that they over-produce to a dangerous level. Those with money stop spending because falling prices mean deferred purchases will be cheaper in future. This leads inevitably to rising unemployment, so workers too cut their spending. The economic vortex so created drags everyone down.
A recent report to the US government emphasised the danger of deflation and stated forcefully that deflation is much more difficult to counter than inflation. In Germany, the post-war "economic miracle" is going into reverse. Unemployment is over four million and rising, consumer demand is depressed and economic policy is now frozen in the glacial grip of the euro-zone. An intelligent German finance minister would at this stage want to reduce interest rates, depreciate the currency and increase public spending — all now impossible inside the euro-zone. The inflation targeting of the European Central Bank has promoted deflation. They've overdone it.
So far Britain has escaped the Japanese and German disease as it seems that the last flurry of buoyant consumption is taking place. Unemployment is half the level of the euro-zone, although manufacturing has been suffering. Rising house prices have sustained consumer confidence and the Bank of England’s inflation target is more a sensible symmetrical two and a half per cent. A symmetrical target is one where policy is designed to raise inflation if it falls below the target, as well as to reduce inflation if it rises above the target. A healthy growing economy always has some inflation in the system and two and a half per cent is definitely on the low side.
By comparison with the euro-zone and Japan, it seems therefore that Britain’s garden is rather rosy but this may not be true. First, a downturn in the rest of the world will have a knock-on effect in Britain. Secondly, the house price boom is petering out and consumers can be expected to reign in their spending in the coming months. Thirdly, price inflation in Britain has been below target for some months now — early signs of approaching deflation. It was reported in August that the Bank of England has discussed cutting interest rates "but held back for fear of panicking the markets". The stock market continues to slide and British bankers are warning that lights are "flashing red". Finally, there is the possibility of war and consequent increasing oil prices which will suck demand out of the western economies and bring recession.
(Thursday 29th August 2002)
Money Surgery is constantly monitoring savings and borrowing rates for our patients, providing, free of charge and advertising, up-to-the-second best-rate information. What we have been seeing of late is a further erosion of the percentages offered on savings rates offered by banks and building societies. The Bank of England, bless them, have maintained the base lending rate at a nice level 4% since November 2001, so what gives the banks and building societies the reason for cutting rates?
According to a letter sent to a patient of the Surgery by Nationwide Building Society, their rates were cut by up to 0.25% because "savings rates have reduced across the market in recent months". At least they had the decency to notify customers. Others deserving naming and shaming include Abbey National, Halifax, Barclays, Intelligent Finance, Northern Rock, Chelsea and Yorkshire Building Society. Underlying reasons might include the extra deposit money coming in from people afraid of shares, or an anticipation of longer term low rates or even a Bank of England base rate cut. Savers with Internet or telephone based accounts with IF have seen their rates tumble by over 1% since last November. Savers can be caught out by companies offerring variable rate accounts that look great but over time become uncompetitive.
We show you the best rates at any given time but remember, patients, that rates can and do change for the worse very often. Ensure that you are able to access your money from a particular account or that you at least know what the access rules are before investing. That way, you can swap to an account with a better rate if required later.
Check the Latest Rates.
(Saturday 17th August 2002)
Our fascination with the national lottery might be fading. "It could be you" has been transformed in the public's collective imagination to "It probably will never be me". The Government is, at the same time, encouraging the growth of casinos. A Government report found that gambling regulations were ripe for reform. It discovered that nearly three-quarters of UK adults take part in some form of gambling, the legal framework for gambling is one of grudging toleration, taking no account of internet or interactive betting and that while many feel gambling is a pleasure, the report admitted that for a few it causes deep distress.
There are 126 casinos in the UK and the easing of restrictions could see twice as many result. Leisure Parcs has applied to develop in Blackpool a 1,000-bed hotel with 100,000 square feet of space for machines offering big payouts, hoping to attract the 400,000 Britons who travel to Las Vegas each year. Resort-style casinos like those in Blackpool might be the solution to the decline of traditional British resorts but we could instead see "gaming sheds" spring up on the edge of urban areas, undermining such plans, if there is too much easing of restrictions. Meanwhile, more may desert the Lottery. "These games have a finite life-cycle - we eventually tire of them," Professor Ian Walker of Warwick University notes.
At the Surgery, we put Gambling in the file marked "Toxic Substances". Handle with care. They could seriously damage the health of your finances. Our thoughts are here.
(Wednesday 24th July 2002)
The FTSE 100 share index has fallen once more today to a 6 year record, closing 80.9 points lower at 3777.1. Having been down 232 points mid-afternoon, the market did recover slightly but shares seem to be in terminal freefall. It has lost over 500 points since it closed last Thursday. The latest quarterly report from the Confederation of British Industry did little to raise spirits, suggesting that industry’s recovery could take more time than expected.
We wish we could report more good news than bad, on Money Surgery. Unfortunately, there's not much to shout about. If you've invested in property or gold some time ago, you should be okay. If you're using 0 percent credit cards to get rid of debts or really low mortgage interest rates to remortgage, you might have more to smile about. Those of us with share-based investments, like pension schemes, endowments and unit trusts, or building society and bank savings might have to simply grin and bear it. Stiff upper lip, old chap. It's a strange mixture: Its easy to borrow money, not too difficult to pay debts off using the right cards, property's gone through the roof but it's getting hard to get a decent return on investments.
(Friday 5th July 2002)
A record £8.12 billion was borrowed by people against the equity in their homes in the first quarter of 2002. The Bank of England has revealed that mortgage equity withdrawal was up from £7.46 billion in the final quarter of last year and is nearly double the figure for the first quarter of 2001.
This follows on from yesterday's article and underlines our concern about the burden of debt associated with the house price boom. It is a worrying statistic that the last time mortgage equity debt peaked was in the late eighties, when the figure of £6.3 billion was recorded. We don't want to scare people, nor do we predict that the negative-equity witnessed a decade ago will reappear but we urge people to foster a mentality of "continual control" over money. We try, and often fail, to make light of debt but it has to be taken seriously. It can so easily get out of control.
(Thursday 4th July 2002)
The price of homes, unlike the temperature, has soared in Britain this summer. House prices rocketed 2.3% on average last month, taking them to 19.3% higher than a year ago. Even since January, prices have risen by 11%, pushing the price of the average home to £109,667. This follows similar figures compiled by Nationwide Building Society earlier this week.
Halifax reported strong price increases in the South West, East Midlands and East Anglia and weakest in Scotland and Northern Ireland. It explained the buoyant property market was being supported by low interest rates, rapid income growth and a shortage of properties. The shortage of available homes is particularly acute in London and the south east. Price growth will ease in the coming months as wage rises slow and interest rates rise, Halifax added.
The opinion of the surgery, since we began in January 2001 in-fact, has been that there is every likelihood that there will be a reversal of house price inflation. Growth has been strong for about six years now, taking prices 30 - 40% above the long term trend, and as Halifax has stated, low rates, income growth and property shortages continue to fuel the boom. And it is a boom. While these environmental conditions prevail, there is nothing anyone can do to stop it. Even the Bank of England refuses to wield its only weapon, its only shield, and raise interest rates. It is such an unwieldy weapon that to combat property inflation, it would harm business at the same time. The "collateral damage" would be job losses, so the Bank sits on the fence while prices click up and up.
Remember, patients, rate rises are likely. If you have a mortgage, consider what effect 1 or 2 extra percent would have on your mortgage interest payments. Don't let Demon Debt in. Don't even ask for ID. Say, "Sorry, there's nobody home." Then slam the door on Debt for good ...with Money Surgery.
Please read on...
(Wednesday 3rd July 2002)
There are still serious questions over the value to consumers of extended warranties for electrical goods, the consumer watchdog has said. After a 10 month investigation, the Office of Fair Trading said consumers were not adequately informed or protected, and competition was not effective. Its report also said self-regulation of the £500m market had failed. It said it was referring the matter to the Competition Commission.
Extended warranties usually add about 50% to the cost of electrical goods, and the OFT thinks sales tactics of retailers appear to exploit limited consumer information of the market. Dixons, Britain's largest electrical retailer, with 32% of the extended warranties market, was a little annoyed at the decision. In a statement, it said: "There is no justification for this expensive and disproportionate action. It is inappropriate and unjustified and we have provided material to the OFT to demonstrate this."
The study included an example of a five-year extended warranty costing £199 on a £430 washing machine. However, the average repair cost is just £51. It also found a mini-disc player priced £180 on which the warranty was £130. Helen Parker, editor of Which?, said: "Heavily pushed warranties have been a pain in the neck and the back pocket for consumers for far too long. However, up until now, the OFT has failed to do much about it. Hopefully, the referral to the Competition Commission will finally remedy the situation. The report said that sales staff often emphasised scare stories about the risk of product failure and the difficulty and expense of obtaining independent repairs.
Our Doctors, here at the Surgery, have long since been appalled at the chronic effect that long-term exposure to Extended Warranties can have on personal finances. Peddled quite legally, often by apparently deaf salesmen, Extended Warranties are offered with persistence to customers who make it quite plain that they don't want an extended warranty. A patient has just reminded us of an encounter at Comet, where he bought a VCR with the express understanding that he was not interested in such a warranty, even before he agreed to buy the thing. Despite this, the salesman asked a further three times "If he was sure he didn't want to protect his new purchase". Each time a polite refusal was given. While the salesman went away, another salesman siddled up to our patient to offer… you've guessed it, an Extended Warranty.
Our philosophy, like some electrical retail staff, is quite simple: Pile up the money saved from NOT buying extended warranties to cover actual repairs, and count the interest.
(Friday 28th June 2002)
Investors are bracing themselves for a second US accounting scandal in one week after office equipment mega-company Xerox said that it would have to restate revenues of around £1.4bn booked over the last five years. The revelation threatens to spark more selling when Wall Street reopens. Xerox had already attracted US regulators with estimates earlier this year that Xerox had "improperly accelerated" sales by £2.1bn between 1996 and 2000. New York newspapers put the total amount of improperly recorded revenue over that five years could be more than £9bn.
A Xerox spokesperson did not comment on the report but stated: "Xerox expects its revenues to be restated by around $2bn over the five year period." Revenues over the five years originally amounted to $92.5bn. The news comes in the same week as American telecomms household name WorldCom confessed it had noticed a $3.8bn black hole in its accounts, much to the horror of markets. Xerox's books are being pored over by accountants PricewaterhouseCoopers, which took over last October after Xerox fired long-time auditor KPMG.
Okay, they got their revenues wrong by about 2 percent over five years. They should survive. "What does this have to do with us?", as some patients have asked. Well, all these shock stories about big companies cooking their books sort of pulls the rug from under investors' feet. What you believed was Black is suddenly revealed as Red. Profits were really losses. After Enron, Anderson, Worldcom and perhaps Xerox, people start asking why they are handing their savings, pension funds, PEPs and ISAs to such a dirty rotten bunch of scoundrels and sell what's left of their share-based investments. Gold, Oil, Building Societys and Government Bonds become a whole lot more attractive as alternatives. The loss of confidence in markets could pull us back into a global recession, and we all know what that means.
It certainly shows what a bubble the late Nineties stock markets were. Perhaps things from now on can get better. Shares are very cheap, possibly bottomed out, as some analysts say. A regulatory crackdown would be welcomed too to wipe the slate clean. History shows us that things are cyclic. With that in mind shouldn't we all be buying heaps of cheap shares?
Answers on a
(Monday 17th June 2002)
The Trades Union Congress has today called for all employers and employees to contribute to personal pension schemes. They believe that all employers should contribute by law and in their Prospects for Pension report demand that all employees become members of occupational pension schemes. The report accuses employers of having a herd mentality in closing final salary schemes.
A glance at the latest best annuity tables is startling reading for those of us planning for retirement, let alone those of us approaching retirement. Best bargain for a Joint Compulsory Purchase for a couple, male aged 65 and female 60, is Norwich Union's £605 a year, based on £10K purchase price. That's a taxable 6.05%
Money Surgery applauds further debate about what's wrong with our pension system, lets face it, there's plenty to talk about. But lets face facts too and realise that final salary schemes are an enormous burden on companies in todays low inflation, low interest rate environment. At the other extreme, what is the point in saving hard in a personal pension scheme when all you get is the same return as a good savings account but without the access to your own capital? Especially when our government is so keen to beef up state pensions.
(Thursday 6th June 2002)
Average property rents have fallen to their lowest level for more than two years as buy-to-let properties have flooded on to the market, a report claimed today. The Royal Institution of Chartered Surveyors (RICS) warned people thinking of buying an investment property that there were now too many landlords chasing too few tenants. It said rental levels had fallen steadily since October 2000, and this - combined with increased property prices - had pushed down gross yields for landlords for the sixth consecutive quarter.
Two weeks ago, a survey revealed that London in particular was suffering from the effects of a slump in demand. Today, the RICS said average gross yields had now fallen below the level at which most landlords would be able to make a profit. RICS lettings market spokesman Jeremy Leaf said: "The lettings market is saturated with properties as a result of the rush to invest in buy-to-let properties. There are too many landlords chasing too few tenants, driving rents down to a level where making a profit is difficult. There will be many investors who are disappointed that buy-to-let has not lived up to their expectations." "We would advise anyone considering entering the buy-to-let market at the moment to take professional advice before going any further, or even delay until market conditions improve."
During the three months to the end of April there was a slight increase in demand, with 12% more surveyors reporting a rise in demand compared with those reporting a fall - although this was down from 31% during the same period last year.
Only 8% of surveyors expect rents to rise, confirming the depressed nature of the market, while yields are also expected to remain under pressure. Private landlords have the largest share of the market, accounting for 86%, followed by institutional landlords at 10%. The proportion of private tenants in rented accommodation increased by one percentage point during the three months to 83%, while the number of social tenants rose by 3% to account for 6% of all tenants. But the level of corporate lets fell 3% to 9%, and the number of students remained the same at 3%. RICS said there was stronger demand for rented accommodation in the North, Midlands and Wales, but in London surveyors reported a sharp drop in tenants.
Here at Surgery HQ, some patients have let us know that they were were eager to invest in the fizzing property market. We were quick to caution them. The property market is full of buy-to-let investors dismayed with shares and savings account interest rates but with spare cash because their mortgage interest payments are at record low levels and their own homes have risen in value. Rule number 23: Never invest with the crowd.
We can't predict the future at Money Surgery but we are always warning people to prepare for the worst. We have expected a fall in property prices for some time now. Across the UK, they are 20 - 40 percent above the long term trend. Either they will drop in the short term or stall and wait for the long term trend to catch up. And from here on in, interest rates can only go one way. Be careful not to borrow too much. This site is dedicated to eliminating debt. That's why we're here.
(Wednesday 15th May 2002)
The consumer magazine group Which? has called on the UK's biggest banks to end what it describes as the £500 million rip-off of their customers. Which? challenged the banks' chief executives to offer people 20 times more interest when their balances are in credit.
It also demanded a radical cut in overdraft rates in the latest phase of its "No Interest" campaign. The consumer group said its research suggested the big four banks rarely offer good value financial products. It wants Barclays, HSBC, Lloyds TSB and NatWest (now owned by Royal Bank of Scotland) to increase the rate of interest from 0.1% to 2% on customers' balances when they are in credit.
Helen Parker, the editor of Which? said: "Because most people don't switch, the big banks have no reason to change. "But customers have the power to make the banks take notice."
The criticism from Which? came as the heads of the four big banks were giving evidence to MPs about their treatment of business and personal customers. The government has already imposed price controls after accusing the banks of overcharging small businesses and making excess profits. The Treasury select committee, which is hearing the evidence, could make further recommendations to the government.
(Thursday 9th May 2002)
At the Surgery, we are very familiar with Alliance & Leicester, one of the converted building societies. Patients regularly report another £50 welcome gift gained from opening, and then closing, current accounts that have been funded with 3 months worth of salary cheques. A&L do not check up whether the customer has opened any accounts before, nor do they insist on fully transferring the customers existing direct debits and standing orders, which might make new customers stay with their new bank. One Patient at Money Surgery reports that they have now successfully got £200 in total from 4 account openings from A&L with no questions asked. They did not go for a 5th £50 because they were bored with doing it! See How to Change Your Bank Account for more.
We have been expecting to read bad market news about Alliance & Leicester for some time as a result of our patients brilliant anti-debt tactics, so it comes as no surprise to read about their poor performance in today's Times. Their gross mortgage lending rose by just 7%, compared with 37% for the sector as a whole. Their bank loan customer base increased by 8%, compared with 15% throughout the sector. Their Premier current account has increased sales by 50% but margins on these products are wafer thin. A&L seems to be struggling noticeably against its bigger rivals like Abbey National and HBOS, and it seems to be cruising for a bidder to put it out of its misery.
"Take Profits" argues the Times's Richard Irving. They certainly appear to be generous with their profits for opening current accounts, that's for sure. Is it worth loyal windfall share owners keeping the shares of such an overgenerous company?
(Wednesday 1st May 2002)
Serious warnings that the buy-to-let market has overheated will be issued by property experts next week.
The Royal Institution of Chartered Surveyors (RICS) will warn investors of the dangers of committing to buying a second home and renting it out.
The RICS reports an "explosion" of buy-to-let investors, resulting in too many landlords chasing too few tenants, which is now pushing down rents. The income produced on rented homes has now fallen for the fifth quarter in a row, leaving many people with a shortfall on their new mortgages.
At the same time, Nationwide reports house prices have risen by a record 3.4% last month. While this is good news for those who already own investment property, it could make it harder for new buyers, who will need bigger mortgages, to cover their repayments with rental income. RICS figures show London has been hit the hardest, with more than 80% of agents reporting a drop in lettings, against fewer than 20% reporting a rise.
Mortgage lending rose by a record £4bn in March to reach £389.4bn, according to the latest figures from the British Bankers' Association. And total advances were £10.9bn. Figures for March from the Council of Mortgage Lenders also showed advances were at an all-time high, up 25% on February.
Mortgage applications are continuing at high levels and as a consequence over the last few weeks an increasing number of lenders have been making their products less competitive simply to reduce the inflow of new business. Lending for purchases was up by 37% last month, whereas remortgages only increased by 11%. With the average purchase case involving a lot more work and servicing than the average remortgage, this sharp increase in purchase business has caused a servicing headache for some lenders.
Money Surgery suggests that applicants allow extra time for the mortgage to be processed, or, if time is a premium, only deal with companies that are having no application overload. Consider using an independent broker to get the latest and best deals.
(Wednesday 17th April 2002)
If you're single and working, Gordon Brown has just made you 3 or 4 pounds a week worse off. On the other hand, if you're a pensioner or a parent, consider yourself slightly better off. That's the budget in a nutshell for Joe Public but what about the effect of the budget on the economy and society?
At the Surgery, we are worried about the effect on jobs and industry of the National Insurance double-whammy: 1% extra employer contribution and 1% extra employee contribution. It will have the effect of taxing employment that will be most unwelcome for the City and struggling manufacturers, while every employee gets an effective pay reduction of one percent. "We won't raise income tax", said Gordon Brown. He didn't but he still got his money.
Unfortunately, Mr Brown consistently lowers the taxes on gambling which is not always a great debt control environment, and this budget was no exception with the abolition of Bingo taxation. We heard someone on radio comment that this will "Hopefuly stimulate parents and children to go out and be entertained at bingo halls." Healthy / Unhealthy? You decide.
The help for small businesses we feel is counterbalanced by the effects of the national insurance increases. The money allocated for the national health service is beyond criticism: You asked for it, as we wrote in our previous article, below.
We welcome the increase to £200 per year for the pensioners fuel allowance. I can see them all now. Grey haired, rosy faced and cosy, furiously marking off their numbers in countless bingo halls across the land. Its a roundabout way to keep warm using the winter fuel allowance, I suppose.
(Sunday 14th April 2002)
Gordon Brown will present his 2002 budget on Wednesday. We think he will challenge the electorate to put its money where its mouth is and stump up more money for health and education. He is likely to increase the money the government gets overall through taxation to show that public services are well supported.
At the Surgery, we have made a shortlist of possible budget changes that might affect those of us who are fighting debt. We think that the VAT rate might be lifted to 20%, from 17.5%, which might reduce the burden on the Bank of England to raise rates to counter consumer demand. The amount that the government gets through National Insurance payments might be increased, perhaps by raising the upper threshold, but we are not likely to see an increase in the basic rate of income tax, as this was an election pledge. Since 1997, when Mr Brown became Chancellor, he has been expected to reform inheritance tax. We might see an extension to the "potentially exempt transfer period" from 7 to 14 years and an increase of the nil-rate band for estates to £500,000. Increasing the bands for stamp duty paid on home purchases also seems logical, given the sharp increase in house prices since they were last set. However sensible it may be to reform stamp duty, it is only a "possible" budget tweak.
We won't moan very much if cigarettes and alcohol get a few pence extra tax but we expect only cigarettes to be targetted by the alcohol-friendly but T-total Mr Brown. There might be a simplification of family benefits and more tax favouritism for "green" car drivers. Pensions and annuities are likely to be left untended as usual. All will be revealed on Wednesday. One thing is for sure: The budget can only have a limited effect. The global economy has far more influence on our economy than the contents of any red briefcase. Similarly, each one of us has responsibility for their own personal finances and in that respect, we have far more control than Gordon Brown.
(Friday 5th April 2002)
Interest rates have been frozen for the fifth month in a row at 4% by the Bank of England's rate-setting Monetary Policy Committee.
The widely-expected decision to keep rates on ice was welcomed by the Confederation of British Industry. "With inflation well under control and pay settlements slowing, the Bank had no reason to rock the boat," suggested Ian McCafferty, CBI's chief economic adviser. "The economy still needs time to build on the recent early signs of recovery. There is no reason why rates cannot stay at this level for some time to come," he added.
However, City analysts believe borrowing costs will rise later in the year to take some of the heat out of the consumer boom and to keep inflation subdued. Recent figures showed borrowing on credit cards at record levels and house prices continuing to grow strongly.
(Wednesday 13th February 2002)
Official figures reveal that the number of people classed as unemployed fell last month, while the number of people in work has reached an all-time record high. Jobless figures fell 10,600 to 961,300, last month. Those in work, at the end of 2001, numbered 28.2 million, the highest level since records began in 1979.
Such news is likely to be of interest to the Bank of England when setting its base lending rate, many analysts deciding that rates have bottomed at 4%. Keen to minimise any consumer boom and bust, the BoE Governor will want to use interest rates as his main weapon to curb citizen's spending. The news of lower jobless totals and a higher than expected inflation rate all turn the base rate arrow upwards for the next move in rates. However, the Bank's Monetary Policy Committee is unlikely to react in March to such a limited set of data and will wait for more statistics and a more definite pattern, after all, our beleaguered manufacturing and service industries are begging for even lower rates.
(Tuesday 12th Febuary 2002)
Underlying inflation jumped to an unexpected 2.6% from 1.9% last month, above the government's target of 2.5%. Hopes of another rate cut were dashed as a result, while markets reacted unhappily, the FTSE-100 slipping into the red after good early morning gains on the back of US gains last night.
Many investors have already priced in a rise in interest rates by the end of June, seeing the news as confirmation of a booming consumer market. The Office for National Statistics blamed the rise on a TV license hike, increasing petrol costs, a rise in gas prices and less-than-expected discounting on the High Street. Gilt futures are already indicating a rate rise, again by the end of June, by 0.25%
(Friday 1st Febuary 2002)
It is predicted that the UK economy will outperform rivals this year, with 2.1% growth compared to 1.4% for the eurozone and 1.2% for the US, according to a leading think tank.
The Institute for Social and Economic Research predicts a stronger rally in 2003, with the US growing by 3.7% and surpassing both the UK and EU at 2.6%. However, the Institute is less bullish on Japan, which is expected to fall 0.8% in 2002 in a second year of recession. It said the UK economy was performing better than others because of higher Government spending and strong consumer confidence sparked by lower interest rates.
Most other industrial countries are cutting back on public spending due to budget limitations. However, the UK has built up a surplus of £50bn over the past five years that could be used to fund future spending increases.
(Friday 25th January 2002)
A recent survey of lifestyles and consumer spending published by Mintel yesterday has revealed how we spend our money, like a snapshot profile of the average Briton. The results were interesting. So does the following ring any bells with you?
Apparently, people are spending more on wine, spirits and convenience foods than ever, and to counteract the ill effects of their intensive lifestyle they buy a record number of beauty products, vitamin pills and over the counter medicines. Personal disposable income has risen by 30% in real terms over the past 10 years, but the average debt for every man, woman and child is now £11,830. Personal debt rose to £720bn in 2001, encouraged by low and stable interest rates. Nearly a third of people are concerned about their financial situation. But two thirds were either happy about it or had not thought about how their circumstances might be affected by the global economy. There has been a 24% drop since 1992 in the number of adults who would save money in a bank or building society when they felt financially confident. Instead, the trend over the past 10 years has been to spend more on ourselves. Conversely, there are also signs of prudence with spending on financial services is growing fastest, as people invest in life insurance and personal pensions.
The number of older men is growing relative to the number of older women, as the life expectancy gap between the sexes narrows. The next decade will see fewer single old women and more old couples, who are likely to spend more on leisure and travel together. The next five years will also see a growth of 3% in the number of 15 to 34 year olds with out dependants, who as first-time buyers of houses and services will stimulate growth. Predicted spending by these two groups makes Mintel bullish about the economy generally.
The size of the average household is still falling, as divorce rates rise, down to 2.23 people from 2.65 people 10 years ago. More than half of households now have a computer, compared with under one in three in 1995. The value of the mobile phone market has increased by a whopping 439% in the past five years, and is now close to saturation point. Spending on home furnishings has risen by 19% over the past 10 years to £10.3bn in 2001, stimulated by the popularity of TV decorating programmes. And as people stay home to enjoy the results, drinking and entertaining at home are on the increase.
Consumption of wine at home was up a massive 47% last year against five years ago. Consumption of spirits, which declined by 9% between 1991 and 1996, has grown by over 20% in the past five years as flavoured mixed drinks have become fashionable among younger groups.
People are also spending more to buy time. Spending on domestic and garden help has grown 88% in five years at current prices to £4.9bn, while the convenience meal market has grown 41% in real terms over 10 years. A fifth of adults rarely sit down for a meal. Men's spending on toiletries was 21% up in real terms in 2001, compared with five years ago while women's toiletry expenditure was only slightly up. Mintel interviewed 2,000 adults immediately after the events of September 11 and again last November.
(Friday 11th January 2002)
The Bank of England has held steady and kept interest rates frozen at 4%, despite massive Christmas retail sales.
Governor Sir Edward George warned recently that the spending boom was "unsustainable". However, members of the Monetary Policy Committee clearly feel it is too early to act on the unverified sales news and raise rates. Manufacturers breathed a sigh of relief but may left wondering what the future rate direction will be. The CBI was quick to welcome the Bank's decision.
"It would be wrong to overstate the inflationary impact of strong Christmas sales", suggested the CBI's chief economic adviser Ian McCafferty. "It is likely that consumer spending will slow into 2002, and the lack of inflationary pressure makes a further cut possible in the months to come," he said. As our article below discusses, the decision was expected. What will happen to rates in early February MoneySurgery can't foresee.
(Sunday 6th January 2002)
The Bank of England is concerned about the surge in British consumer spending given the current context of global economic stagnation. The Bank's Governor Sir Edward George says personal debts are becoming dangerously high and unless consumer demand slows, interest rates will have to rise. The Bank decides on borrowing costs on Thursday. While a rise is unlikely, with house prices and spending racing, a cut has been ruled out by the City.
While Bank of England Governor Sir Edward George is talking of raising interest rates if spending fails to slow, the City has not given up entirely on the idea of one more cut. That would happen if the manufacturing slump deepened and spending slowed. Rates usually stay unchanged in January because of a lack of economic data on Christmas trading.
More evidence of the high street surge is due this week. On Monday, the British Retail Consortium reveals how well shops fared in December. John Lewis, the Waitrose supermarket chain and the Confederation of British Industry have already spoken of the December binge. Economists think the BRC will paint a similar picture. Next fashion group and jeweller Signet are also likely to talk of boom times in the days ahead. Following Nationwide's house price report showing a 1.9% rise in December and an increase of 13.8% over the last year, comes the monthly report from the Halifax on Tuesday and its quarterly housing market report on Friday. Both are likely to endorse the Nationwide's figures and its findings that we are witnessing the biggest rises since 1988, when the catastrophic housing boom left many trapped in negative equity. Burgeoning car sales from Reg Vardy, the car dealership group, are likely to show a big profits jump when its interim results are published on Tuesday.
Clearly Britain is experiencing a two speed economy, with manufacturing in recession on one hand and a high street boom on the other. The Bank of England, while torn between the two, policywise, would be wise not to react to either extremes. Fingers crossed, manufacturing will pick-up on the back of low rate stimulation and consumer spending will peter out. Other influences, perhaps from the United States, might provide a clearer yardstick upon which to base monetary policy. Meanwhile, back down to earth, those of us with mortgages or savings or both might want to take heed of Sir Edward's warning regarding rate rises.
Many people, whose opinions matter, predict a recovery in the U.S. later this year. If this happens and rates stay low, the market might threaten to become overheated, leading to rate rises very quickly. The whole thing can quickly turn on its head, so...you've guessed it...stay in control of your finances and don't succumb to every Zero Percent card offer that comes through the letterbox. Always watch rates, on savings and debts, and scrutinise each bank statement. Get in control, with the Surgery and stay in control.
(Tuesday 1st January 2002)
A leading analyst says Tesco is likely to remain the UK's top online grocer in 2002, despite other retailers' claims to be cashing in on the game. The Sainsbury's to You website, Sainsbury's third attempt at online retailing, had losses of £29m and 177,000 customers, compared to Tesco Direct's £6m and one million customers and Tesco could even reach profitability in 2002.
Tesco was the first to mobilise its online presence and now is in a dominant market position. It has made the effort to really want the business and this domination may be one of the reasons why earlier this year Safeway abandoned its online project before it had even left the pilot stage. For customers who consider grocery shopping a chore may find Tesco's £5 delivery charge very reasonable.
Many of us need a car. We might need one for cummuting, for travelling with children, for visiting relatives and, lets face it, to go to the supermarket. Online grocery delivery takes a little while to set up but can be a breeze to use later, utilising the internet to provide nutrition information and price tables at a glance. Delivery can be arranged within a day and at all hours of the day and week.
This level of service can eliminate the need for a car and save us £3800 a year. The time spent travelling to the supermarket and pushing a trolley through a quagmire of clogged aisles can be spent doing something more rewarding or earning more money. How is that for discount shopping?
(Tuesday 24th December 2001)
A new venture, dubbed Britain's first ever People's Bank, has been unveiled in Scotland.
A new building has been built for Dalmuir Credit Union which is the largest credit union in the UK with over 60,000 members and has handled £30 million of member's money since its creation. Credit unions are not-for-profit organisations that can offer borrowing at lower rates than high street banks and cater for people whose only other alternative is loan sharks and what the Citizens Advice Bureaux call "consumer credit rip-offs". The CAB say that those on lower incomes are likely to suffer the most from overborrowing and has called for the government to introduce a system of affordable "social loans".
The Christmas period drives many people into debt, particularly families on low incomes. Irresponsible lending can lead to financial problems that are not entirely the fault of the borrower. We suggest that everyone seek out their local CAB and credit union to see what they offer, what they can do for you, whether you are in debt or not, as a first rather than a last resort.
(Tuesday 17th December 2001)
The headline inflation rate, which includes mortgage payments, sunk by 0.7% in November to 0.9%, which is the lowest since July 1963. The key underlying rate, which excludes mortgage costs, was down 0.5% to leave it up a mere 1.8% on the year.
The Office for National Statistics said that lower petrol and oil prices and contracting seasonal food costs contributed to the inflation rate slowdown. Fresh vegetables were noticeably cheaper compared with November 2000 when the exceptionally wet weather inflated prices. Motoring costs also fell as used car prices reduced over the year. Insurance premiums have also been reduced over the year.
With inflation this low, there are will be pressure for the Bank of England to cut interest rates again when it meets in the new year. Mr George and his team will be rather embarrassed to be missing its stated target of 2.5 percent by so wide a margin, despite unforeseen events on this day three months ago. All eyes are looking Stateside for news on whether the Fed has decided to reduce United States interest rates. Any reduction there will force the issue here in Britain.
(Monday 26th November 2001)
The place in Britain with the lowest car insurance is, not surprisingly, the most remote: The Orkneys. Sounding a little like some ancient West country term for a human body part, the Orkneys, and other remote Scottish locations, are cheapest to insure according to a survey done by the AA.
Don't confuse the Orkneys with Cockneys, either. Londoners have to fork out the most when it comes to covering the car. The survey puts Orkney at an average of £231 and London at £480. Nationally, car insurance has gone up 9% over the last year. This might be the last straw for a few drivers and any disgruntled motorists might be contemplating relocating to the Orkneyan capital, Kirkwall. Imagine...no more jams, no more urban decay, no more vandalism and grafitti. Cars are fun. Cars allow you to go wherever you want whenever you want. You have to have one, it seems, but the motorist gets taxed, fined, charged and plundered until he or she becomes shackled. How can we break free of this expensive necessity. There is an alternative...
Ever considered selling your car and not buying another? It makes perfect sense, especially if you are in debt and live in a large town or city. Journey times can be quicker by bike, cheaper by bus. You don't need to park anything or worry about anyone stealing anything. Cars, the great freedom symbol of Century 20 are pinning us down.
(Thursday 15th November 2001)
We have collectively amassed more than £700 Billion of debt for the first time in the UK. A shock new report shows that the average non-mortgage debt is at over £5,000 per household. In other words, if one household has £5,000 in savings, the next has £15,000 in debts.
The Trading Standards Institute and the Office of Fair Trading have been so alarmed that they have dedicated their annual National Consumer Week to controlling debt. The campaign, which was launched earlier this week, urges people to think carefully before borrowing money or buying on credit and to shop around for the best deal. They also suggest that people seek good, impartial advice if already in debt. MoneySurgery applauds this promotion.
Unfortunately, people with debt problems can't be changed. They have to recognise the probem and want to change themselves. Simply consolidating numerous credit card debts into a single monthly loan payment can be a good idea but if we still carry on using the cards and mounting up the debts again,the situation becomes worse. This time of the year is also a time when many people struggle with debts. The average consumer spend on Christmas festivities is likely to be over £600 for the first time this year. Analyse your own situation and if you have debts that you want to eliminate, get wise, get informed and take control by adapting your own lifestyle to your income and your debt burden. Get into intensive care with MoneySurgery and our programme of discipline.
Our phrase of the week is, "Debt free". Repeat it every half-hour. It sounds wonderful. "Debt free, debt free". It's easier said with a smile. Try it.
Remember patients: Keep it tight. Spend wisely. Maximise the money potential you have to set the maximum aside to reduce your debts. A happy Christmas is a "Debt free" Christmas and shopping sucks.
(Thursday 8th November 2001)
Base rates plunge once more by a larger than expected 0.5%, to 4%. This makes it 7 times this year that the Bank of England's Monetary Policy Committee has ruled for a cut in an effort to stave off recesssion. It comes in the wake of Tuesday's half-point cut by the US Fed. Their rates stand at 2%. The CBI was pleased but people are still spending freely and will be encouraged to spend more once their mortgage rates come down again. The city was less enthusiastic, many perceiving the cut as dramatic and foreboding of bad news to come. The FTSE-100 was up just 61 points.
The move was followed by a small series of similar rate cuts at mortgage lenders. First off the blocks was Halifax who cut their variable mortgage rates by an identical 0.5%. That's the attitude, Halifax! We'll let you know if any mortgage lenders are sluggish when it comes to following suit or if any cut their savings rates again. One thing's for certain: There's more to come, and we like mortgage cuts at the ...Surgery.
(Tuesday 6th November 2001)
One thing that we have failed to bring our patients is a regularly updated table showing the latest pound value compared with foreign currencies. They can be of vital importance to travellers about to trade some of Her Majesty's notes for those of a distant, probably sunnier, country.
Did you know that one pound buys 22.14 Gambian dalasi? Maybe Italy's 3017 lira is of more interest, it certainly sounds like a lot. Apparently, you can get 1.362 dollars per pound in Bermuda.
Unfortunately, tourist currency rates will never appear on Money Surgery because if you are struggling with debt, why spend on luxuries like holidays? In case you are unaware of our well publicised doctrines, we regard holidays abroad and travelling for pleasure generally as illogical, when the money used to fund the trips is borrowed and your debts are threatening to affect your well-being. You may be trying to forget reality on a beach in Bermuda but the house you left behind in Britain might be threatened by your mounting debts. Don't hide. The sooner you face up to debts spiralling out of control, the better. the next step is to regain control, monitor spending and decide if changing your lifestyle is a secrifice you are willing to pay to beat those debts. If so, get back in the black then relax, abroad if you like. Imagine ...sun, sea and savings. Go for it. By that time you will have earned it.
...Don't fancy the Bermuda triangle, though.
(Saturday 3rd November 2001)
The unseasonally warm weather has left many trees and shrubs green and healthy. They seem to be hanging on to their leaves to make the most of a summer that doesn't want to end. Sadly, we wish we could see savings accounts holding on to their percentage points in the same way.
Cuts this week, made to accounts paying the better rates, were little short of brutal. Most were hacked by 0.5% while some, like Leeds and Holbeck's Regular Saver account, were chopped by 0.75%, from 6% to 5.25%. All this on the back of a series of serious rate cuts by all banks and building societies, far more than the cuts made by the Bank of England this year. These changes certainly keep us busy here at MoneySurgery.
Investors seeking a safe haven from "turbulent" equities are running out of alternatives in these darker days. Lets hope the cuts are pre-emptive of another Bank base rate cut this Thursday and that they don't use it as an excuse to cut once more. On the bright side, most new mortgages are cheap and new personal loans are becoming a little bit cheaper. Watch those rates, patients, don't stay with an ungenerous bank or building society, and batten down the hatches for winter...even if this is an Indian summer.
(Saturday 27th October 2001)
Beware! These are Evil!
We've enjoyed showing you how high rates can get on certain credit cards in Thursday's article, below, so much that we have decided to put the spotlight on some Savings Account howlers. We have scoured the nations sewers and gutters to bring you the finest examples of scary financial freaks.
When we had the idea to do this Halloween horror bag, we were genuinely surprised how many accounts on the market pay less than 2% gross. We estimate that about 50% of the 100+ we surveyed paid 2% or less.
These rates are gross, in more ways than one, and these rates are low. You've been warned.
Dog Savings Accounts
|Company:||Product:||Access:||Rate £1+:||Rate £500+:|
|Clydesdale Bank||Instant Solution||Instant||0.10%||0.10%|
|Bristol & West||Easy Life Saver||Instant||0.10%||0.50%|
|Derbyshire BS||Cash Account||Instant||0.25%||0.25%|
|Alliance & Leicester||Instant Access||Instant||0.50%||0.50%|
(Thursday 25th October 2001)
Mortgage lending fell sharply last month, but shoppers are still spending, according to Britain's major banks. While gross mortgage lending was down 17% to £9.78bn from August to September, total net consumer credit rose by a whopping £666m over and above the £839m total of the month before. In September last year, the total was less than half what it was this year. Peter Vipond, head of research and statistics at the British Bankers' Association, said, "At a time when everyone is talking about doom and gloom, it is clear that people are still confident enough to borrow more and spend on nice things like cars and house extensions."
At the Surgery, we are pleased to see that consumer confidence hasn't been shaken
by recent events, being as it has a major influence on the economy as a whole. The flip side is that not only are we still prepared to spend but to borrow to spend, perhaps in the comforting knowledge that our homes are increasing in value and our jobs are secure. Many of us have loans, overdrafts and credit card balances and many new accounts will be opened in the run up to Christmas. If you are considering borrowing, check what the interest rate is on EVERY card, loan and overdraft that catches your eye. Some charge over 20%, while others offer 6 months interest free. We show a selection of excellent rates for Credit Card Balance Transfers and Personal Loans, here. Be careful and remember that YOU are in control; its YOUR debt, YOUR money. Use these low interest deals to REDUCE your loan...according to our Chief Surgeon, "The best credit card is the one cut up by scissors!."
The flip side of these cheap credit card financial friends are these Credit Card financial foes:
Avoid at all costs!
Dog Credit Cards
Company: Product: APR: Intro Rate: Cash Back: Annual Fee: Capital One Classic M'C 24.2% No No £18 AA Visa 21.9% No No £10 Airdrie Savings Bank Visa 21.1% No No £10 HFC Bank M'C/Visa 19.9% No No None
(Sunday 21st October 2001)
Two thirds of people in Britain would make a dishonest insurance claim if they thought they could get away with it, according to a survey by the Association of British Insurers. Some 69% said they would make a dishonest claim while 76% agree or strongly agree that fraud is common when making an insurance claim. Out of 2,000 people surveyed, 46% agreed that most people inflate the value of a claim by at least one third. The ABI estimates that around 10% of motor claims and 15% of household claims are fraudulent.
Insurance companies are to use lie detectors in an attempt to clamp down on the high number of fraudulent claims, totalling £2BN per year. Speech analysis machines will be used on telephone claim lines to monitor the tone of callers' voices. Any exaggeration or excitement caused by the stress of lying will cause a warning light to flash on the operator's desk. If the claimant is deemed to be a high risk, they will then face further investigation. Highway Insurance, the country's eighth largest motor insurer, will be the first to install the technology. However, David Cresswell, a spokesman for the Office of the Financial Ombudsman, said, "We are extremely unlikely to accept the findings of such a test in determining whether a claim was turned down for valid reasons or not".
At the Surgery we were amused by this odd method to crack down on dodgy insurance claims and wonder whether the heart of industry is behind telephone lie detection as its cutting-edge vanguard against fraud. One thing is for certain: This year's excess fraud or losses will be recovered through next year's higher premiums.
(Sunday 14th October)
The Financial Services Authority has launched a new web site revealing the terms, conditions and charges on investment ISA's and OEIC's. Located under www.fsa.gov.uk/tables, the tables show all the details based on criteria that the visitor has to key-in first. The details can be sorted in order of charges or provider name, similar to www.trustnet.com.
We have tried and tested both sites and we can highly recommend them. Both sites are easy to use and reveal the, sometimes, awful truth.
The glaring omission from the FSA site is past performance details. The site seems to over-emphasise the charges and terms on funds and this has upset a few financial advisers who claim such tables, lacking in fund performance data are next to useless. However, the FSA is keen to underline its philosophy on past-performance in that it genuinely is NO guide to future performance and that charging has to be clarified. Used in conjunction with www.trustnet.com which shows past performance figures, the internet based investor is supplied with a rich source of up-to-date information, underlining the increasing advantage that internet users have. Unfortunately for managers of poor performing and high charging funds, the writing is on the wall.
(Wednesday 10th October 2001)
Carpetbagging is back in fashion! Customers of Scottish Provident will soon be told if they are to receive a windfall payment as a result of the Abbey National takeover. The life insurance company will distribute £1.6BN to qualifying members. It is believed that all 450,000 policyholders will get £500 minimum, with the biggest windfalls for with-profit customers, potentially averaging £3,400 each. Payments will be made some time in January 2002, with letters outlining the actual amount sent this December. Some policyolders with large and longstanding accounts may be in line for £100,000.
Customers should check carefully their letters from Scottish Provident to ensure all their relevant policies have been included for compensation. The Scottish Provident helpline is on 0845-270 0444. A MoneySurgery Gold Star to any lucky policyholders who tell us of their good news here.
(Wednesday 3rd October)
Gambling tax will be scrapped on Saturday in time for England's vital World Cup football match against Greece. This should set the tills ringing at turf accountant's throughout Britain and marks another step in the relaxation of restrictions on gambling. A spokesman for Ladbrokes said that the binning of betting duty will ensure that the industry is set for a golden age. Ironically, the tax was introduced before the World Cup of 1966.
When someone is struggling to be rid of debt, going without the luxuries and some necessities of life to keep every penny, the notion that some cash can be found to put on a horse or a lottery ticket is perverse. Then again, if they've got no debts and fancy a flutter, there is very little argument for trying to stop them. It's their money after all, not borrowed from a bank. Please see Addictions: Gambling for our brief opinion on the subject.
(Sunday 30th September 2001)
One sector that seems to be thriving is the domestic chore sector, whereby children do jobs around the home for cash. In a survey by Family Assurance, 31% of parents said that they paid their children weekly to do tasks like mowing the lawn. Only 16% of parents never paid their kids to do chores and children generally appear to be ever more astute when it comes to getting extra pocket money.
After coping with the scary cost of £20,000 over the first five years to have a child, see Saving Money Page 5, parents are then collectively shelling out £345 million a year in pocket money and payment for household chores. That's on top of food, clothing, education. The cost of typical chores to parents include:
All this certainly highlights the monetary value of the traditional housewives role and that we, as adults, are becoming ever more prepared to pay cash to avoid tedious household tasks. (Going up chimneys was noticeably absent from the list, thankfully).
(Sunday 23th September)
In the face of an oncoming global recession, mortgage lending continues to surge to a monthly record of £16.7 billion in August, according to the Council of Mortgage Lenders. However, the CML expects the recent incidents in America, and the subsequent collapse of world stock market indices and consumer confidence, to slow the market down.
Ironically, the very tool used by the Bank of England to help stimulate the economy also stimulates the mortgage market. Borrowers are inundated with continually improving mortgage deals as rates come down and they haven't been this low for 37 years. It remains to be seen if the unexpected rate drop of last Tuesday is enough to continue the mortgage boom given that consumer confidence has taken a severe hammering since September 11th.
(Tuesday 18th September)
The Bank of England has shaved a quarter point off its base rate, taking it to 4.75%. It was not as much as expected with the United States Fed and the European Central Bank both chopping their base rates on Monday by half a percent, to 3% and 3.75% respectively, in the wake of last weeks terrorist attacks. The Bank is believed to have waited until today to digest the latest monthly inflation statistics before deciding how to react and given the unexpected sharp rise in underlying inflation to 2.6%, today's move is seen by many as a half-measure. A quarter point cut was on the cards for October anyway. The London stock market seemed unimpressed, the FTSE-100 dropping 50 points to finish at 4848.70.
On the high street, business is slower with many shoppers staying away, more concerned with other things than spending spare cash. And who can blame them? A global recession now seems inevitable since last Tuesday's horrific scenes, turning the carefree shopper of the "consumer boom" into a spendaphobe, battening down the hatches. The continuation of this consumer confidence might just have held off a recession but now things have turned on their head.
A glimmer of hope may come from a bolstering of worldwide security, especially in terms of travel, provided we are all prepared to give up certain individual freedoms in exchange. A swift resolution of the bin Laden problem that leaves intact worldwide American support and that does not fuel extremism would boost industry and allay our own personal fears for the future. We are not in recession just yet.
(Sunday 11th September)
Tomorrow sees the reopening of Wall Street and the US stockmarket after the terrorist attack last Tuesday. Share prices have been tipped to move higher initially, in defiance of the terrorists attempts to wreck the world economy with many determined to demonstrate a "business as usual" attitude. The insurance and travel sectors seem likeliest to suffer most as a result of the attack.
Long term the impact of Tuesdays events could be more negative. The United States economy was already desperately trying to avoid the slide into recession. Now with the heart of the US and world economy physically ripped out, recession seems inevitable, not only because of the physical cost but, to a larger extent, the traumatic impact on consumer confidence amid fears for the future and an impending middle east conflict.
The future cannot be foretold, not even by Nostradamus. Events can occur that sweep us all off our feet that we can have no control over. It is important that we continue to live, work and travel in defiance of terrorism but it is equally important to reduce our debts and build up an emergency cash reserve. Control as much of the future as possible by being financially prepared.
(Sunday 16th September 2001)
Control is a word used to sell a lot of financial products these days. The flexible mortgage is frequently sold as a product allowing more control over your finances. They pool all your accounts, credit card, current account, personal loan, mortgage in one place with the overall savings offset against the debt, all on the comparatively low daily calculated mortgage interest rate. They also allow mortgage overpayments and payment holidays. Flexible mortgages come in two varieties: The "Current Account Mortgage" and the "Offset or Integrator Account". However the Current Account Mortgage, as offered by Virgin One, Yorkshire Bank, Clydesdale Bank, can actually give you less control over your money and cost you more each month because the account works like a massive overdraft so you can't see what has gone where. The result is that debts risk increasing rather than decreasing and the payment holidays might be too easily used. Also the rates on such schemes are higher than traditional discounted schemes. Virgin One's variable rate is currently higher than 6% at a time when many lenders are tempting us with 5.5% fixed for the entire term of the mortgage.
Offset versions of the Flexible mortgage, like those offered by IF, egg and Woolwich, allow greater control because each account remains separate but is linked so that the overall debt can be reduced and you can see how much is in each account promoting a reduction of overall debt. At MoneySurgery we think that Flexible Mortgages can make sense for those of us on variable incomes. Assuming a consistent income, the discounted mortgage is our personal preference, though. Any savings should be directed to accounts offering the best interest rates and any credit card and personal loan debts reduced as a matter of priority. There's little point having savings AND debts. Savings really should be used to pay off these credit cards and loans. Similarly, pooling all ones accounts with a single company makes little financial sense. The banks are desparate to get a single account with you, no wonder they are marketing four or five accounts in one. Shop around and go where the best rates are. Make them more competitive, don't accept their distinctly average rates. The more astute amongst our patients have realised that by NOT paying off the mortgage and saving their excess money in ISA's and other higher rate accounts they get more savings interest than they are paying on their mortgage.
The goal shouldn't be to get the same interest on loans as savings but to get a better interest rate on what comes in than what goes out.
(Monday 10th September 2001)
Abbey National has asked the Government to consider making stakeholder pensions compulsory after estimates put the targetted low-earners' take-up at just 30%. It also urged employers to contribute to new schemes after surveys reveal that when employers contribute, the take-up percentage jumps to 60%. In many cases the new stakeholder schemes are simply repackaged and rebadged existing schemes.
Clearly "Stakeholder" has failed to capture the imagination of the public whose wages are between the government's target range of £9,000 and £20,000. Without the incentive of an employer contribution, there is little attraction to these lower cost schemes. There is still a need for clarity with pension scheme performance and the mechanics of annuity regulations urgently need to be reviewed so that they become less restrictive and simply better value. There is no incentive to save money in a pension scheme when the government gets re-elected (partly) on the back of an increased basic state pension that would equate to a pension fund total of about £80,000, at current annuity prices. Pension schemes also are tarnished by recent misselling. Above all pensions are simply boring.
At MoneySurgery we can only see two good reasons for saving money into a pension scheme, as opposed to a mini-cash ISA:
1. When the employer also contributes at least as much as the employee.
2. The fund remains untouchable until retirement, so that it is safe from being "squandered" by the policyholder.
Lets hope the government gets the message that we need a better value personal pension system AND that it RESISTS the Abbey National's call to make everyone pay into the existing bad scheme.
(Sunday 2nd September 2001)
Bank and building society interest rates have all moved down a notch this weekend by between 0.2% and 0.45% This is not a delayed reaction to Augusts Bank of England base rate reduction but an anticipatory move ahead of an expected British cut this month or next. Since last month's cut we have witnessed similar rate cuts in the US and Europe.
Again, savers deposit returns are being squeezed with the best Mini Cash ISA offering 5.75% Some accounts are barely protecting deposits against inflation (currently 2%) and don't look such a tasty alternative to our wayward stockmarkets. Savers have to shop around and check what they are getting on their accounts and compare with the best providers.
To forget about accounts, knowing that it's rate was a market leader when it was opened, is precisely how banks and building societies expect you to behave. They promote new accounts with advertising and high interest rates when they need to get new custom, then gradually lower the rate once the account is established. When questioned some months after opening it, many savers believe that their well-chosen savings account is still providing a market leading return. Unfortunately, many get a nasty surprise when the true rate is revealed. Leave the account for a few years and the account becomes "No longer offered to new investors". When this happens, the rate can drop to less than one percent, the investors becoming victims of their own misplaced loyalty.
So, read the Best Rates section of newspaper financial pages, watch the rates on bank and building society web sites or scroll down this page to the Best Interest Rates section of MoneySurgery MoneyNews, and be prepared to transfer to the latest hot account. An hour, once a month, could be enough to protect your savings.
(Wednesday 15th August 2001)
The number of people out of work and seeking employment in the UK fell 12,800 last month, taking the City by surprise and lifting the gloominess of the UK economy. The new total is 950,300 and is the lowest since October 1975. The jobless rate remains steady at 3.2%. The services industry was responsible for creating the jobs, while nearly all manufacturing sectors reported falling employment levels. Metal production, textiles and transport equipment have been particularly hard hit.
Additionally, average earnings rose 4.8% in the three months to June, compared with a 4.6% forecast. The Office For National Statistics suggested that most of the upward pressure on wages came from bonus payments made in June, particularly in the financial, retail and hotel industries. Public sector earnings increased 5.5%, the strongest rise since January 1993.
(Wednesday 15th August 2001)
Three members of the Bank of England's Monetary Policy Committee voted against this month's 0.25% cut, fearing it would foster already strong consumer demand and fuel house price inflation. Minutes from the BoE's August meeting reveal that the Bank's two deputy governors, Mervyn King and David Clementi, voted along with Ian Plenderlith for rates to be held at 5.25%. Admitting it faced a "dilemma" at this month's meeting, the MPC said cuts were needed to help the UK's beleaguered manufacturers but with healthy consumer demand, the MPC stated a preference for a "gradualist strategy" instead of a bigger cut.
(Tuesday 14th August 2001)
The Headline rate of inflation has fallen by 0.3% to 1.6% in July, slightly more than economists predicted. The underlying rate of inflation, which does not take mortgage interest payments into account, also fell by 0.2% to 2.2%.
Chief Economist at the British Chamber of Commerce, Ian Fletcher, said, "This underlines our view that the greater risk to our economy is slower world growth rather than inflation." He continued, "The Bank of England has scope to cut rates."
This follows on neatly from yesterdays lead story, below, and quite clearly paves the way for a cut in rates next month. The MPC's minutes from their last meeting will soon be published, hopefully revealing the inner thoughts of Britain's economic pacesetters. The gloom still persists, here at the Surgery and, we believe, at the Bank of England. The MPC's meeting minutes will probably show their acute awareness that each rate cut further stimulates consumer endebtedness. Both Money Surgery and the Bank are hoping that consumer spending will cool off.
(Monday 13th August 2001)
The likelihood of more rate cuts have improved after the latest factory inflation figures show declining material costs. Any reduction will probably lead to a reduction in retail inflation.
Input prices, the cost of raw materials and fuel, actually fell by 0.3% in july, compared with a year ago. This is the fastest decline for over two years. Similarly, output prices which measure the cost of goods leaving the factory, have increased by a mere 0.1%, representing the lowest increase since January 1999.
The Bank of England is torn between two stools: Helping British industry by lowering its base rate or taking the heat out of consumer borrowing and housing inflation by raising its rate. Any increase in headline inflation figures, possibly as a result of consumer spending, would usually be countered with an increase in base rates.
So, downward pressure on retail inflation through lower manufacturing costs might encourage the Bank to help industry with another rate cut, just as it did last month. As it stands, headline inflation is set to undershoot target levels set by the Bank and the government. Does this suggest that the economy is fully under control, we wonder?
(Monday 6th August)
According to the Office for National Statistics industrial output fell in the three months to June, marking two successive quarters of falling manufacturing output. This means that UK manufacturing is officially in recession. London shares finished lower, with all the main indices below their opening levels.
Manufacturing constitutes just over a fifth of the economy and the slump in the sector has just spread into the larger services industry sector. On Friday, the Chartered Institute of Purchasing and Supply said the services were "near stagnation" in July, with growth having virtually ground to a halt.
(Monday 6th August)
The housing boom is over with sales "drying up" as property prices hit a peak, according to data group Experian. The research company said house sales have dropped 35% in the past year, and look set to continue to fall, forcing estate agents and builders to reduce prices in order to "maintain momentum". "Although house prices have appeared to rise, the actual volume of sales has taken a nosedive", said Experian spokesman Bruno Rost.
(Thursday 2nd August)
The Bank of England has decided to reduce their base rates by a quarter of a percent to 5% In an unexpected move, the cut was made to counter the economic downturn and was welcomed by business leaders and mortgagees. In its statement, the Bank said its decision was made to sustain domestic demand growth in the light of weaker-than-expected expectations of world economic activity, the persistent strength of sterling and weakening investment growth. The bank said this was contrasted with robust retail spending, household borrowing and the housing market remaining robust. David Page, economist at City stockbroker Investec, said: "This is a surprise move from the Bank of England and reflects a greater concern over the recovery in the US and a weakening in the Euro zone."
Money Surgery believes that the cut could increase the extraordinarily high levels of consumer borrowing and fuel the "unsustainable" house price levels, recently reported. Should inflation rise, will the Bank of England increase its base rates? A combination of increased unemployment, high consumer borrowing and a deflating housing market could mean misery for many. Many people are struggling to borrow up to 4 times their salary for a new home and a mortgage that seems cheap. However, mortgage interest rates have been, on average, around ten percent since the war, so the effect of a doubling of mortgage interest repayments for these home buyers could be devastating. Prepare for the worst, cut out debt and look at the underlying reasons for the Banks' shock cut. They are worried about the future of our economy.
(Tuesday 17th July)
Just when the carpetbaggers come out from under their collective stone, sniffing a windfall, some MP goes and spoils it all permanently. At least thats the objective. An "anti-carpetbagging" Bill introduced today by Labour MP Gareth R Thomas proposes a minimum number of votes required for demutualisation of 75% on at least 50% turnout. Building societies already have such requirements as part of their rules. Mr Thomas wants this provision to extend to all mutual organisations.
On Thursday, the Nationwide Building Society will hold its AGM, including an election of two directors to the board. One of these is Andrew Muir who is seeking to convert the society. Unfortunately, he failed to read the society's rules correctly and in his election profile, sent to members, he advised that they send the forms back blank for him to fill as the members' proxy but under the rules these forms will be deemed void! As one Nationwide employee quipped, "Do we really want a director that can't even understand basic society rules?" Oh well. Now where did I leave my stone?
(Sunday 8th July)
Policyholders of Standard Life, the insurance giant, could at last be in line for a windfall from its conversion to a PLC. Iain Lumsden, who takes over as Chief Executive in March, recently made statements confirming their commitment to mutuality that he is expected to make but many experts say that Mr Lumsden is not so dogmatically attached to mutuality as his predecessor, Scott Bell. During last years conversion battle at Standard, Mr Lumsden conceded that policyholders could indeed be better off should the company convert. Widely seen as the last Great White Windfall roaming the seas of mutuality, carpetbaggers have long sought to convert the insurer along with the many others that have recently shed their mutual status. It would provide windfalls of an average £3000 to policyholders of three years or more and should easily enter the FTSE100.
The Bank of England yesterday raised the spectre of a return to the housing boom and bust of the late 1980s as new figures showed mortgage lending had surged to an all-time high. In minutes of their last meeting two weeks ago, the Monetary Policy Committee cited the "strength" of the housing market when it decided not to cut interest rates. The MPC said: "It is possible that the housing market could become a source of further concern, if LOW LEVELS OF MORTGAGE INTEREST RATES WERE TO PROMPT A RENEWED HOUSE PRICE BOOM." The Bank is normally very cautious when discussing housing and industry observers were surprised that it had used the "boom" word.
Some representatives of mortgage lending companies, eager not to put off potential custom by referring to the "boom" word, believe that a slowing economy will soon take the shine off consumer confidence and that this will slow house price inflation. Figures from the mortgage industry showed that the volume of new home loans rose to an ALL-TIME HIGH of £8.1bn in May. The Council of Mortgage Lenders director general, Michael Coogan said, "Buoyant housing confidence and spending may mean the MPC's next move in interest rates is UPWARDS", while Ian Mulken, chief exec of the British Bankers' Association, described the mortgage market as "very buoyant".
MoneySurgery has spotted the very first signs of a distinct turn for the worse in the obvious place to look: London. Every nationwide shift in house price inflation or deflation starts in the capital and from there, Chesterton International, the up-market estate agent reports that there has been a "sharp" downturn at the top end of the London market, sending its shares down 25%. However, other London based agents are reportedly amazed at the announcement from Chestertons. At the Surgery we have been warning for some months that continued consumer confidence bolstered by extremely low mortgage interest rates and lenders eagerness to lend, lend, lend is fuelling an increasingly likely boom-bust situation. However, in many ways we hope that the events of the late eighties don't return to haunt us.
BT Cellnet offers 15 months continued connection to MyTime Net200 tarriff for £69.99, after cancellation requests from the customer. Some mobile phone operators might be so keen to hold on to existing customers that they offer cut price "verbal" deals like this one from BT Cellnet. Customers with good payment records at the end of their contract term might receive tempting "Golden Shackles" offers from companies but only if the customer threatens to end the contract. This £69.99 offer from BT Cellnet continues the 200 minutes free off-peak deal for the equivalent of £4.66 per month which is comparative to the costs of swapping to a cheap Pay-As-You-Go deal.
If you have to get a mobile we suggest getting a cheap pay-as-you-go type or converting your pay-monthly to pay-as-you-go. SIM cards can now be bought for £20, including £5 worth of calls with call charges as low as 2p per minute at weekends and 5p off-peak. If you use the phone at weekends for 200 minutes a month you only pay £4 per month. This kind of deal might just be the best option right now, especially as mobiles are increasingly being perceived as ESSENTIAL items. Whichever deal you might be tempted by, don't forget to shop around, read the small print, use the phones sparingly and at times that are most cost-effective. Keep mobiles fully charged and topped up for emergencies.
The Bank of England has decided to leave its base lending rate unchanged at 5.25%. This will disappoint many labour supporters who were hoping for a cut just before the election to boost the feel-good-factor among the electorate. Many commentators, particularly those who lean to the right, would have interpreted a rate cut as compromising the neutrality of the Bank and the members of the Monetary Policy Committee would have been well aware of this. So it probably would have taken particularly extreme economic data to force a change in the rate. As it turned out the news was contradictory with consumer borrowing and spending at ever higher levels compared with distinctly downbeat trading results and directors' pessimism.
However your vote is cast, we hope that you take into account the various party policies concerning tax and savings and the benefit system. In five years time we might all be looking at a brave new European future too. How well have Labour run the economy? What about Stealth Taxes? Do you want more taxes for better public services?
Whatever...don't forget to use your vote!
We each owe credit of a whopping £3,000, it seems, according to market analysts DataMonitor. It said that Britons embarked on one of the greatest ever borrowing binges over the last five years with the total amount of consumer credit standing at about £128BN. This comes from five main areas, namely credit cards, motor finance, retail finance, overdrafts and unsecured personal loans. The total represents an average of £2,810 for every Briton of working age.
Latest mortgage lending figures imply that people are buying homes that they cannot afford. The largest age group seeking debt help are those in the 25 - 39 age bracket according to the Consumer Credit Counselling Service. Their problems will be compounded by a sharp fall in house prices and that is just what will happen according to independent think-tank Cambridge Econometrics. The average house price is now FIVE times the average income. That is exactly the ratio we had just before the last "Housing Crash" in 1989. The Financial Services Authority recently added to concerns after it complained of lax and over-generous lending by banks and building societies. The Bank of England has cut base lending rates this year three times, from 6% in January to 5.25% in May, fuelling the market for homes and homeloans.
Some of the people that went through the misery of home repossession and negative equity back in the early nineties have remarked to us how similar the current house price situation is to the situation back then. There are differences. We have significantly less unemployment now and significantly lower interest rates but both these factors could have the effect of fanning the fires of house price inflation to levels beyond the 5 x income ratio mentioned before. The economic climate is precarious. Rates are on a downward trend, for this year at least. Homeowners face an uncertain future. Some homeowners, those with longer memories, may feel able to predict what is around the corner. Strangely, the financial professionals that lend money for homes appear to have no memory. Gone are the days when new mortgagees had to pay an indemnity guarantee to the lenders to cover the lenders' backsides in case the home was repossessed and the lender lost money on the deal. This was all the rage in the mid-nineties, after the housing crash. Gone are restrictions on lax and over-generous lending by banks and building societies, as mentioned earlier. To cap it all, in the face of a stretched housing market and a slowing economy, we all carry Three Grand of debt around. Those who made it through the late eighties and early nineties who have long memories look back and learn lessons.
Don't look back in anger...I heard them say.
No prizes for guessing that the Bank of England would adjust the lending rate again for the third time this year. It did just that, down 0.25% to 5.25% in the hope that our slowing economy can be spared a recession. It wasn't as much as many observers expected but it leaves the door open for further cuts this summer...before the General Election perhaps. What many observers weren't expecting was a similar 0.25% cut from the European Central Bank, down to 4.50% and only the second rate cut in its two year history. Perhaps the final straw as far as ECB leader Wim Duisenberg is concerned was the depressing German economic data which suggests a sharper than expected slowdown there. Lets hope that mortgage rates go down quickly, not forgetting that most savings rates went down considerably in the last couple of weeks.
The Bank of England looks set to cut interest rates when it meets this week as evidence mounts that the UK is facing a slowdown, economists predicted today. The possibility of a cut looked increasingly likely as figures out last week revealed the manufacturing sector was contracting at its fastest rate for two years, with the service sector also slowing.
City experts are now split over whether the bank's monetary policy committee will reduce rates by a further 0.25%, or a more aggressive 0.5% when it meets on Wednesday. The base rate is currently running at 5.5%, following two cuts already this year, reducing mortgage rates to their lowest levels since the 1960s. David Smith, an economist at Investec, said the MPC may not go for a full 0.5% cut as this could cause panic. He said: "It is actually a slowdown in the UK. It is no longer a concern that we may be hit, it is now actually a slowdown situation. "We would be looking for a cut of 25 basis points in May and a further 25 points in June." Alex Scot, of Barclays Stockbrokers, also predicted the MPC would cut rates. He said a 0.25% cut would be preferable as it "held out the promise of further cuts further down the line".
Britons waste £500 a year on clothes, shoes and accessories that we don't even wear, according to a new survey by Cahoot. The online bank interviewed 200 men and women aged between 25 and 40 and found that most of the unnecessary spending went on so-called bargains and designer labels. Women were the worst, spending an average of £526 a year, while men squandered £474.
At the Surgery, we emphasise the need for control. When out shopping we think that we can't be tempted. We can control our money. But that pair of shoes or that designer jacket stays in our subconscious long after we've seen it in the shop window. If you want to save money, avoid shopping malls and city centres like the plaque. It is VERY difficult to resist.
Surprise, surprise. The European Central Bank has left its base rate at 4.75%, continuing its position as the only central bank not to lower interest rates this year. Perhaps there will be some questions asked at the forthcoming G7 summit this weekend in Washington.
Despite the threat of a slowdown in the economy, most people aren't worried about their financial situation, according to a report by Lloyds TSB. The survey found that 52% of people in Britain had no money worries in the first three months of this year. The South West appeared to be the most satisfied at 60%, with the lowest in the North West at 45%.
What appears to be certain is that the economy is slowing down. How far and how fast the growth of the economy will fall is still to be seen. The Chancellor, Gordon Brown prefers a figure of 2.5-2.75% for the next two years, while the CBI estimates growth in the UK as low as 1%. Money Surgery has had an increasing amount of feedback from patients describing the shock of being made redundant and more job losses are likely in the next year. Our message, as ever, is prepare for the worst, try to cut out those debts and plan for survival...whatever the future brings us.
The US Federal Reserve has cut its interest rates by half a percent to 4.5%. In a surprise move, it added that risks to the economy were still to the downside. It was the fourth rate reduction this year.
Stock markets across the world welcomed the news by rising significantly. By 19:00 GMT, the Dow Jones was up 420.20 to 10,636.93, which is not too far away from all time highs reached last year, and all this in an environment of supposed doom and gloom. The UK markets also rose along with European markets. Where will this end though? Are we all to have base rates as low as Japan's near zero rates?
Wages have risen faster than inflation according to the latest data, which could influence the Bank of England when it next decides on rate cuts in May. This conflicts with the weak inflationary pressures mentioned in the next article. We'll report on the next meeting of the Bank of England's Monetary Policy Committee next month.
Wim Duisenberg defended holding base rates at the European Central Bank saying that reasonable growth is still expected from Europe in the near future. However, most other analysts were puzzled, pointing to conflicting statements made by other prominent ECB strategists alluding to a likely rate cut. While the US and the UK have lowered their respective rates considerably in 2001, the ECB has held its rates to the dismay of many people hoping for a boost to the regions economy. Such odd tactics do nothing to enhance business confidence with many people commenting that the ECB is risking flirting with recession by gesturing that they are truly independent.
Inflationary pressures remain utterly flat, according to the latest figures, which could prompt further rate cuts in the coming few months. Factory gate prices were unchanged from Feb to March, taking the annual rate to 0.8%, the lowest for two years. The cost of raw materials and fuels was also weaker than expected, down 0.9% in March.
With Bank of England Chairman, Eddie George already having to contemplate writing an open letter to Gordon Brown to explain why headline inflation has undershot target figures, the Bank's Monetary Policy Committee may find a rate reduction irresistible again in May.
The new tax year begins today and among all the other investments that can be bought for 2001-2002 is a new kid on the block: Stakeholder Pensions.
A few years ago, Tony Blair argued the case for all people having a "stake" in Britain and in their futures. The Stakeholder Pension is aimed at people on more modest incomes that are not already in occupational pension schemes and, by definition, the stakeholder pension must have charges capped at 1%. Social Security Secretary Alastair Darling said that stakeholder schemes must meet a number of standards "to make sure they offer value for money, flexibility and security".
Sounds good. We believe that pension planning should start when you are young, after getting rid of debts if possible. Money Surgery surgeons are busy writing up our difinitive guide to Stakeholder Pensions and will publish it under our "How to..." section shortly.
The Bank of England took another quarter point off its base lending rate, from 5.75% to 5.5%. It mentioned the Foot and Mouth crisis and global economic slowdown as causes for concern. It is the Bank's second cut this year and brings the base rate down to the lowest levels since the sixties. Other banks and building societies are expected to reduce their lending rates to suit, unfortunately, this also applies to savers who will continue to see their interest rates withering away.
The average consumer is virtually clueless when it comes to investment products according to a new survey of 2000 people by Alliance and Leicester. Despite a barrage of advertising highlighting the need to maximise ISA subscriptions before the end of the tax year, more than 50% could not link the term "ISA" with Individual Savings Accounts. Just 10% recognised a maxi-ISA while 17% recognised a mini-ISA. Worse still, a sizeable number of people with specific saving and investment products had no idea what the product was that they invested into.
At Money Surgery, we like ISA's. They offer good 6 to 7% annual returns at a time when stock markets find their reverse gears. To help you out, we have a page that sums up ISA's in clear language and incorporates the latest budget rules from the Chancellor of the Exchequer. Hand-stitched by our busy surgeons, its called How to...Understand ISAs.
Mortgages and repossessions fell to only 1 in 500 last year as inflation and unemployment levels come down. As interest rates also come down the Council of Mortgage Lenders worries that this may revive a complacency culture amongst borrowers. Its recent research found that only 5% of borrowers worried about meeting payments if their job ended. 42% felt that their savings would tide them over.
At Money Surgery we recognise that things can change quickly. We are already witnessing worldwide stockmarket jitters based on expectations of an American recession (See next article). Tomorrow any one of us may be out of a job. So make sure that those debts are cleared and that you have a few grand at least saved for emergencies. Prepare for the worst and make sure that, come what may, your most valuable possession remains yours.
New research shows that having a baby will cost even the most budget conscious parents a massive £20,315 in the first five years alone. Despite tax breaks from Chancellor Gordon Brown, there is no financial incentive to having children and for those in debt having a baby could be financially disastrous. Combined with running a car, "running" a baby could easily top £8,000 per year. See The Car for more info. Shelling out on childminders can cost working parents £7,000 per year.
Pregnancy and Birth Magazine did the research and it calculated costs ranging from the £9 testing kit to £200 a year on toys. Those who preferred to give their child the best of everything can blow £36,000 in the same 5 year period on things like a private hospital birth and organic food.
At Money Surgery we warn people in debt that babies are expensive and should be planned carefully. We cannot advocate starting a family when the household into which they are born is blighted by debt so we intend bringing you a page devoted to the costs of parenting. The whole subject is linked to family planning and social issues which we promise to discuss or provide you with a web page that is devoted to debt and childbirth. Watch the Saving Money section and Contacts page in a few days.
The Budget gave something to everyone but there were no pre-election goodies to tempt floating voters. Continuing with his long term outlook, Chancellor Gordon Brown is keen to provide Britain with spectacular...stability. He reminded us that Britain had not seen such sustained low interest rate and inflation rate levels since the sixties. Economic growth is stabilised at between 2 and 3 percent per year. The people that Mr Brown targetted in his budget were children and families whose households gained by roughly £830 per year. Most of the rest of us got about £133.
The enduring impression though is that Britain's economy is in safe and prudent hands, keen to foster economic prosperity through stability. And lets face it, Gordon Brown didn't exactly need to give us pre-election sweeteners.
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