Financial Review

Economic recovery ‘entrenched’ in UK
The UK economy will grow by 2.5% this year and 2.1% in 2015, the National Institute of Social and Economic Research (NIESR) has forecast. It says the UK’s economic recovery has, in its words, become entrenched. The estimates are broadly in line with those of other forecasters, including the UK’s Office for Budget Responsibility. NIESR also said it expects the unemployment rate to fall below 7% before the end of the year.

This forecast follows similar increased UK growth forecasts from the International Monetary Fund (IMF) and the Organisation for Economic Co-operation and Development (OECD). Falling unemployment and rising house prices have helped to encourage consumers to spend more. Now even the more sluggish sectors of the economy, such as construction, are showing signs of strengthening. The NIESR said consumer spending will remain the key driver of recovery in 2014 and 2015, supported by continued buoyancy in the housing market.

House price rises build credit debt
More than four in 10 people are sinking into the red to fund their homes, lifestyles and pay bills, with personal debt rising to almost £140 billion. These figures suggest that much of the recent economic recovery is being built on credit cards. Rising house prices, it seems, are again creating an illusion of wealth, meaning people borrow to fund the lifestyle they believe they have earned from the rising value of their home.

Consumer research has found that 43% of people owe more in terms of unsecured credit – cards, loans and overdrafts – than a year ago. The average owed by young people aged 18 to 24, who are unlikely to have a mortgage, is £5,446, excluding student loans. Research found a third of people have one type of unsecured debt, while nearly a fifth have two and a further one in 10 have at least three. Credit cards are the most popular borrowing option, with 46% of people owing money on these, with all the associated interest and penalty charges. This is followed by overdrafts and personal loans. This reflects another illusion – that interest rates are low, when in fact the borrowing methods used charge rates as high as before the recession.

Interest rate may inch up next year
Bank of England governor, Mark Carney, has overhauled the Bank’s interest rate policy to reflect falling unemployment and the economic recovery. He said the Bank’s forward guidance policy is working and had helped to secure growth. Its interest rate policy will now be determined not just by unemployment, but by a wider range of indicators. But he warned that the recovery was not secure and when rates rose, they would do so only gradually. However, investors took this as an indication that rates could rise next year, sending the pound higher on money markets. Even when rates begin to rise they are unlikely to exceed 2% within the next five years, with the first increase likely later this year or in early 2015.

Expert highlights savers’ suffering
The extent to which savers have been hit since the credit crunch has been highlighted by a pensions expert. Low interest rates that have been in place since the 2007-08 crash have seen those who have saved throughout their lives losing thousands of pounds, while delivering a bonanza for borrowers.

Research by financial expert, Ros Altmann, shows that someone with £100,000 in the bank has lost up to £21,000 since 2008. Each year the interest income is at least £4,250 lower than it would have been before base rates tumbled to historic lows. But a borrower with a £100,000 mortgage has enjoyed a bonanza since 2008, saving more than £19,000 on a standard variable rate deal. Their mortgage repayments are now almost £3,300 cheaper than at the end of 2007. Pensioners are disproportionately affected, because they are more likely to have savings than a mortgage.

Ministers squander £120bn, report claims
Government ministers managed to waste £120bn of taxpayers’ money last year – enough to write off the whole of the country’s deficit, a hard-hitting report has claimed. The study, by the Tax Payers’ Alliance, claims that one pound in every six spent by the public sector last year ended up being squandered. The Alliance claims this is two-and-a-half times the amount they found when they first conducted the exercise 10 years ago.

The report suggests bringing public sector workers’ pay packets, pensions and sick pay in line with those in the private sector. It also suggests scrapping the entire Department for Culture, Media and Sport and transferring all its functions elsewhere, a move it believes would save the taxpayer around £1bn. The report also highlights many small areas of excess spending, but a key message is to get a grip on the management of the NHS and the spiralling bills from negligence claims.

Tax fraud emails rocket almost 50%
The number of so-called ‘phishing’ emails sent out by fraudsters rocketed by almost 50% in the past three months compared with the same period last year, HM Revenue and Customs has said. It has warned taxpayers not to be caught out by the rise in scammers targeting people via legitimate-looking emails offering tax rebates in return for bank account or credit card details. In the three-month run-up to the tax return deadline, people reported more than 23,000 phishing emails to HMRC. Overall, more than 91,000 were reported last year. HMRC says anyone responding to this type of email risks opening their bank account to fraudsters and having their details sold on to other organised criminal gangs.

As a result of people forwarding phishing emails to HMRC it was able to close 178 websites, some of which seek information while other introduce tracking devices to computers to access banking and other details. The advice is simple – HMRC never contacts those due a tax refund by email and will always do so by letter.

Silver pound keeps economy afloat
It was spending by the over-50 baby-boomers that helped drag the economy out of its five-year malaise, a report has claimed. The research, by the Centre for Economic & Business Research (CEBR), also suggested that the ‘silver pound’ would help keep the recovery on track as wealthier older people continue increasing spending, particularly on food and recreation. Saga, which commissioned the study, said this counters claims that the baby-boomer generation creates a drag on the UK economy. Baby-boomers are the generation born between 1945 and 1965, some of whom began to reach retirement age during the financial crisis.

The CEBR’s research showed that older people, proportionally, are wealthier and are increasing spending at a faster rate than those under 50. Saga said if over-50s spending – which accounted for £320 billion or 47% of UK household expenditure in 2012 – had only grown at the same rate as under-50s, GDP would have been depressed by 4.2% or £6.8bn, and by 2018 the economy would be almost 7% smaller.

Are unused clothes the skeleton in your cupboard?
People are sitting on £30bn of clothes and shoes they have not worn for a year. This huge amount of what has been dubbed ‘wardrobe waste’ has been identified by government advisers who are urging people to make use of their old clothes. It suggests there is huge scope to breathe new life into the items buried at the back of cupboards by altering and updating them.

The figures on unused clothes and shoes were collated by the Waste Resources Action Programme (WRAP), which is best known for tackling food waste. It claims that people are putting clothes and shoes worth £140m a year into the bin, sending them off to landfill, rather than making good use of them. WRAP claims perfectly good clothes, worth as much as £91m, are being put in the bin after only being worn once. The group has set up a Love Clothes campaign to encourage people about how best to make use of clothes that were bought on a whim and sit unloved in wardrobes.

Floods will raise home cover costs
Households will face a rise in the cost of their home cover as insurers seek to claw back heavy underwriting losses caused by floods. Experts suggest that premiums for all home owners could rise by an average of £19 a year. Excesses, the amount paid by a customer when they make a claim, could also rise sharply for those living in flood-affected areas.

The NFU Mutual has said its claims as a result of the floods are already above £60m. The insurance industry has said it believes losses from the current disaster will be around the same as from the floods of 2007. The destructive floods then ultimately cost insurance firms nearly £3bn and forced up home insurance premiums by as much as 16%. Some people also saw their excess charges rocket from £100 to £5,000.

Fall in real wages to continue in 2014
A third of the British workforce expect to receive either a below-inflation pay rise this year or see their pay frozen again, a Chartered Institute of Personnel and Development survey has discovered. The report says that just over a third of the 2,700 people questioned received a real terms wage rise in 2013. The survey comes amid warnings that the fall in real wages will not be reversed until there is a big improvement in productivity, and follows the Bank of England’s revision of its forward guidance policy.

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