News Tristan on 09 Apr 2009
The Bank of England announced the new interest rate for the following month today at midday, and in what was not exactly a shock, their decision was to hold it at it’s current rate of 0.5%.
With inflation running at 3.2%, well in excess of the Bank of England target of 2%, this does start to ring alarm bells in my ears. Clearly the economy needs a sustained period of low interest rates to restore confidence in both consumers and businesses, but will the Bank have to raise interest rates in the near future to combat inflation?
If you look at the falling value of sterling against the dollar, you can see why inflation is set to continue to rise in the near future - the relative increase in the price of energy. Hang on a minute, aren’t oil prices much lower than they were this time last year? Well, yes they are, however, in sterling terms, energy is getting more expensive, because we have to buy dollars to buy the energy.
There is something that could be done to release the pressure on the Bank of England, they could start to use the RPI, which is currently much lower than the CPI thanks to it taking into account mortgage interest into its calculations which consumer prices index does not.
News John on 05 Mar 2009
The Bank of England today dropped the base rate to [another] record low of 0.5%. Great news for those of us on tracker mortgages or other loans tied to the BoE base rate! Alongside the drop in interest rates they’ve announced that they’ll be taking measures to increase the level of money in circulation - also known as quantitative easing - by £75 billion, with permission from our dear chancellor Alistair Darling to extend the scheme to £150 billion if needs be.
Sadly the news doesn’t seem to have done much for the stock market, which is down nearly 2%. Perhaps they’re skeptical as Japan has only had limited success as it’s tried various mixes of low interest and quantitative easing over the last decade but still hasn’t managed to sort out its economy.
News Tristan on 16 Feb 2009
I read in on The Times Online today that BMW Mini have laid off 850 agency workers at their plant in Oxford, apparently waiting until an hour before the shift was due to change to let the workers know. In effect this gave a large number of these agency staff just one hour’s notice of their redundancy. Not surprisingly, the agency staff in question have been up in arms about it, throwing fruit at the managers as they left the plant, and telling reporters that they feel they have been used.
I can’t really have too much sympathy with the now redundant staff, surely they must have known that eventually BMW Mini would have to lay them off, the news is full of stories about how the car industry is in dire straights, demand having dropped through the floor. Also, why on earth would they expect BMW Mini to show them any loyalty when they haven’t shown BMW Mini any loyalty in joining their workforce proper, rather than being employed as agency staff?
I suspect it comes down to the age old human emotion of greed. They probably earnt more money as agency staff, and were quite happy to take that and forgo paid holidays, pension etc when times were good, but as soon as times get bad, it’s BMW Mini’s fault for laying them off, as is their right to do with temporary staff. You can’t have your cake and eat it, goes the saying, so why do so many people think that they can?
I wonder how many of them have done anything to offset the effects of this redundancy? I wrote about ways to earn extra money in your spare time last week, it seems that it may have been a bit late for these workers, but it just goes to prove how useful having some extra income could be should your employer pull the plug on your job without much notice.
On the flip side, Kentucky Fried Chicken have announced plans to create 9,000 new jobs in the UK as part of an expansion drive. The expansion plans include opening a further 200 - 300 restaurants across the UK in the next three to five years.
This expansion drive will also see refurbishment for some existing restaurants which will pump money into the economies via the trades, assuming that KFC use UK contractors. Clearly it seems that despite the credit crunch and the ever growing health movement in our society, our appetite for fast food is still growing.
News John on 06 Feb 2009
Yesterday the Bank of England Monetary Policy Committee once again cut interest rates by 0.5% to a record low of 1%. It’s the 5th interest rate cut since October when interest rates were 4.5%.
The cut is great news for borrowers with tracker mortgages, or borrowers whose lenders choose to pass on some or all of the interest rate cut, but not such good news for savers. On the other hand it’s the borrowers that we really need to help out at the moment, reducing the burden on them (both consumers and businesses) will help to stimulate the economy. Whilst savers provide little benefit to the economy and may in fact - much as it pains me to say it, in times like these, harm it by saving.
I predicted this cut in interest rates last week, in my post Bank Of England Base Rate Predictions - not that it took any great insight to do so, and unfortunately, in light of the continuing state of the economy, I think our interest rate predictions remain valid for the forthcoming year. So if you’ve got a significant level of savings, it’s perhaps time to consider some alternative strategies for your savings and investments.
News Tristan on 06 Feb 2009
I read on The Times Online yesterday that RBS, the failed bank that owns Natwest and ABN-Amro is set to pay out millions of pounds in bonuses to its staff. At first I was rather annoyed that the bank would have the audacity to do this despite the fact they were bailed-out with taxpayers money and are still on handouts to from the Bank of England to help prop up it’s trading activities.
However, having read the article all the way through, and watched the video posted with the article, I am a bit more understanding. It seems the vast majority of the bonuses will be paid out to staff who are contractually obliged to receive a bonus should their activities have turned a profit.
In the case of RBS, their foreign exchange, bonds and commodities traders all had a good 2008, so it is only fair that they receive a bonus as a share of the profits they have generated.
The insurance side of RBS - better known as Direct Line - which had a record year in 2008 are also set to pay out bonuses to their staff, and this I’m fine with as it is performance related.
The staff that I don’t think should receive a bonus for are the staff that were involved in mortgages and derivatives of mortgages which contributed to the bank’s losses (reportedly in the region of £7 - £8bn) in 2008. These staff should receive no bonus as they have not generated any profits in my opinion.
There is also talk of the regular branch staff not receiving their usual 10% bonus that they get in March. I suspect that this has become the norm because over the past decade, the norm has been that RBS makes lots of profits, and thus shares some of those profits with it’s workers. If the bank doesn’t make a profit, like in 2008, then the workers shouldn’t receive a bonus - simple as that.
News Tristan on 31 Jan 2009
As the recession has hit hard over the last few months, we have seen the Bank of England lower the base rate to an astonishing and all time low of 1.5%, meaning that many of us on tracker rates are now paying less than half the amount of interest that they were this time last year.
But what if the base rate were to go any lower? Well, there is widespread speculation that it will go lower, I even wrote about my interest rate predictions for 2009 / 2010 in an article not long after the last base rate announcement earlier this month, and predicted it to reach 1% in the first half of 2009.
So if the base rate does go any lower, perhaps down to 1% in next week’s announcement, what effect will this have on many borrowers? Well, according to The Times, there will be a small percentage of people whose tracker rates are at a margin sufficiently below the base rate, that their lenders should actually have to pay the borrower money each month.
In the article, it states that some Cheltenham & Gloucester borrowers are on tracker deals which are base rate, less 1.01%, so if the base rate goes down to 1%, then there interest rate drops to -0.01%.
However, the lender has stated that there is a zero floor on this deal, and in fact it’s computer system cannot cope with not charging interest, so these customers will in fact have to pay a pathetic 0.001% interest, or equivalent to £1 per year in interest, which is a shade over 8p a month. I wonder how many of these lucky customers will get giddy with the extra money in their pockets or simply over-pay the capital on their mortgages?
News Tristan on 30 Jan 2009
I read in The Times today that Barrack Obama, the newly installed US President is angered by the amount of money, reported to be $18.4 billion (around £12.8 billion), that has been paid out in bonuses by Wall Street banks.
I’m not surprised Obama is angry about it, the current economic woes of the world are to be placed firmly at the feet of greedy bankers who made a complete hash of the financial system, so exactly what have they got to be congratulating themselves for by paying such lavish bonuses?
It doesn’t surprise me though, I’ve never been a corporate animal, always choosing to be self employed and therefore self reliant. I bet that most of the bankers who are getting these bonuses are puffed up self important idiots, that think they deserve it, but also probably can’t live without it, as they’ve most likely got used to absurd amounts of money passing through their fingers.
It doesn’t just stop with the corporate world though, in this country the government is just as bad. They’ve had 11 years under Gordon Brown where money was no object, so they’ve never stopped and thought twice about overspending as that just means a bigger budget next time.
I went to the doctors today and couldn’t help but think that the local council have spent a fortune building a brand new medical centre, it’s all very nice and shiny, but what was wrong with the old surgery? It seems to me that the attitude in most areas of business, be it large corporate or even state, seems to be spend now, make everything nice and shiny and worry about the cost (and the burden of paying the cost over decades doesn’t come into the equation).
It begs the question, will anyone learn from the credit crunch? Or will we all just go back to borrowing money without thought for the consequence once the banks ease the constipation of credit that has happened since they all lost lots of money by lending to people they knew would never be able to pay it back?
I plan to never use credit again, as I wrote about in my article life without credit. So far I’ve managed six months without borrowing any money. Admittedly I’ve not made any major purchases, such as a new car, holiday or house, but I’m starting to feel a shift in my attitude from being someone that was used to having the ability to buy on credit, to now thinking carefully about what I spend my money on. I just hope that the credit crunch will alter the attitudes of some of the people of this country, otherwise we will simply cycle between boom and bust in perpetuity, no matter what Gordon Brown thinks…
News Tristan on 29 Jan 2009
I take a keen interest in petrol prices these days as I do a lot more driving than I used to and earn a lot less money thanks to the credit crunch. I read in The Times that oil prices will soon rise because OPEC members need the price of a barrel of oil to be over $50 for it to be worthwhile exporting it.
This does beg the question, why did they let it drop to a price below what it was worth exporting it in the first place? Surely what they are doing is akin to closing the stable door after the horse has bolted. They would have been better thinking about levels of production when the price was at $60 a barrel, and seeing a downward trend, restricting supply and thus keeping the price above $50 a barrel.
The head of BP told the opec panel that the price of a barrel needed to be between $60 and $80 a barrel for the OPEC countries to balance their budgets and invest in social programmes. He also went on to say that this higher price was needed to sustain investment in new oil fields, he said will be needed to sustain demand in India and China who are consuming more and more oil.
Where is the acknowledgement that some of this money needed to be invested in finding alternatives to fossil fuels? I predict that there will be a lot of money made from whoever creates a viable, but similar alternative to fossil fuel, which is sustainable and economically viable.
News Tristan on 22 Jan 2009
I read in The Times today that British Gas are planning a 10% price cut which will save the average household £84 per year. The cut is to be introduced on the 19th February and British Gas are to be the first major gas supplier to reduce prices following pressure from the regulator, in response to falling gas prices on the wholesale markets.
What I find interesting about this is that according to British Gas, the average gas bill in this country is £840 - by definition if £84 is 10% of the average. I’m sure that I don’t spend anywhere near that each year on gas, most likely £600 a year at the most, and I live in an above average size house.
So how can the figures be so skewed? My only explanation is that there must be a lot of people who use a lot more gas than I do - the elderly perhaps who have their heating on all day, every day, even in the summer.
News Tristan on 19 Jan 2009
I read the main story on the front page of The Times today, about the hundreds of billions to bail out the banks again and was utterly bemused.
The banks have already had £37billion pounds just three months ago (October 2008), how on earth do they now need more funding? According to the article in The Times the government are planning a £200billion bailout, which will include a new £100billion mortgage guarantee scheme which to underwrite inter-bank lending.
In another story, the part state owned Royal Bank of Scotland is set to post a UK record loss of around £28billion, as reported on The Times online here. The government is also set to increase its stake in the bank from 58% to 70%, rasing questions about whether it will eventually be nationalised.
The majority of the losses seem to have been caused by RBS’s exposure to US sub prime loans and the acquisition of ABN Amro, which also had a large exposure to US sub prime loans. The share price has fallen to a 24 year low of 19.8p. Might be worth taking a punt on this bank at that price, though I wouldn’t expect to receive a dividend on it for a while…a long while.