Financial Review 5th February 2016

Borrowing down, but target still missed
The Government borrowed £7.5 billion in December, £4.3bn less than the year before. The figure took borrowing for the financial year to the end of 2015 to £74.2bn, £11bn lower than at the same point in 2014. The running total is, however, already above the £68.9bn forecast for the full fiscal year by the Office for Budget Responsibility. Government finances usually record a surplus in January as a large number of tax bills are paid then.

For the full 2014-15 financial year, borrowing was £89.1bn. Total public sector net debt – excluding support for banks – is now £1.54 trillion, or 81% of GDP. The Government’s plan is to eliminate the annual gap between spending and revenue by the end of this decade.

Bank of England rate rise again disappears over the horizon
The governor of the Bank of England, Mark Carney, is facing criticism for his ‘on again, off again’ comments about an interest rate rise – but with global markets in turmoil and UK growth faltering he has finally ruled out any early rise in rates. His official stance is that collapsing oil prices and an “unforgiving” global environment mean tighter monetary policy is not yet necessary.

This latest assessment came six months after he suggested that a rise in interest rates would come into “sharper relief” at the beginning of 2016. Rate rises now seem a remote prospect, with many economists predicting no change until the second half of this year or even into 2017.

Despite criticism that he has changed tack many times on a rate rise, Mr Carney’s stance is that he will be guided by market circumstances rather than a calendar -and farmers know to their cost how volatile markets are and how difficult they are to predict for even the best financial brains available.

Lack of competition sees bank account switches decline
The number of people switching their current accounts has fallen by more than 10% in the past year. In 2015, 1.03 million customers moved their bank accounts to another provider, down from 1.15m in 2014. The drop has come despite a high-profile publicity campaign to encourage speedy switching via the Current Account Switching Service (CASS). This was launched in September 2013, to encourage more competition between banks, and better deals for their customers.

“The figures show customer apathy towards current account switching remains entrenched,” said Richard Neudegg, of the price comparison site Uswitch, adding that a quicker, more efficient switch alone is not enough to encourage customers to change banks, or for banks to improve competition.

Pension withdrawals set to become cheaper
People who withdraw money from their pension funds could see their charges reduced by hundreds of pounds under new laws planned by the Government. The Treasury has confirmed that excessive exit fees, charged by some pension providers, will be banned. The precise level of the cap will be set by the Financial Conduct Authority (FCA), after a public consultation.

The Government says up to 700,000 people faced such penalties. This has emerged in parallel with reports that the Government is about to change the rules on tax relief for pensions. It has already cut the lifetime limit that can be saved into a pension and is now considering making them less attractive for higher rate taxpayers by limiting tax relief to a flat rate.

Since April 2015, anyone over 55 has been free to withdraw as much money as they like from their pension pot, subject to income tax beyond the 25% that is tax-free.

Spanish football clubs top wealth league as top 20 set a new record
Real Madrid has topped the league table of the world’s 20 richest football clubs for the 11th year in a row, according to Deloitte. Its Football Money League, based on the 2014-15 season, also said the combined revenues of the 20 top clubs had risen 8% to £5.1 billion, which is a new record. Arch-rivals Barcelona rose two places to second on the list, pushing Manchester United down to third. Paris Saint-Germain and Bayern Munich completed the top five. Manchester City, Arsenal, Chelsea and Liverpool occupied places six to nine, all of them notching up healthy increases in revenues. Tottenham were in 12th spot, with Newcastle United and Everton at 17 and 18.

The Deloitte list only looks at revenues and does not take into account the clubs’ debts. All of the 20 clubs represented are from the big five European leagues, with England contributing nine clubs, Italy four, Germany three, Spain three and France one.

UK car manufacturing drives to 10-year high
Car manufacturing in the UK has hit a 10-year high, with more vehicles exported than ever, according to the industry’s trade group. The Society of Motor Manufacturers and Traders (SMMT) said almost 1.6 million cars were built in 2015, up 3.9% on 2014.

Nearly four out of five were exported, up 2.7% on 2014, despite falls in sales to China and Russia. Those falls were offset by economic recovery in Europe, where demand for UK-built cars was up 11% in 2015. Production of the Mini rose 12% last year, Toyota was up 10.4%, Vauxhall 9.5% and Jaguar Land Rover saw a 9% rise to 489,000 vehicles.

Dividend cuts are new blow to investors
Investors face a fresh blow to their income following a string of high-profile dividend cuts in 2015. Dividends from UK stocks, including one-off special payouts, are set to fall 1.3% to £86.5 billion this year, according to Capita Asset Services. Excluding special dividends, they are expected to fall 0.9% to £83.8bn, the first drop since 2010.

A rush of big firms cutting their dividends in 2015, among them Anglo American, Glencore, Standard Chartered, Centrica and Tesco, has prompted concern about a further wave of cuts. While the stock market is volatile, companies that consistently grow dividends, or even just maintain them, can bring good returns, particularly if the dividends are reinvested. Capita nevertheless forecasts that UK shares will yield 3.9% overall in the next 12 months, with the FTSE 100 bringing a return of 4.0% and the FTSE 250 delivering 2.9%.

Loose change in cars adds up to £81.9m
Keeping some loose change in the car often comes in handy for when you need a quick snack, an emergency top-up of fuel or to pay a toll charge. That money adds up, however, and according to a new study, the average motorist has £2.60 somewhere in their car, be it in a cup holder, glove box or lodged down the back of a seat. Based on there being 31.5 million cars on the road in the UK in 2015, that means drivers are storing a total of £81.9m pounds in their cars. That is almost twice as much as could be hiding underneath sofas and cushions, which the Halifax estimated at £42m in 2010.

Super-car sales are soaring for McLaren
McLaren is planning to more than double sales as global demand for its super-cars soars. The company, based in Surrey, sold 1,654 vehicles last year in 30 markets around the world. It is now planning to sell about 3,000 this year and 4,000 in 2017 as it ramps up production of a new range of models, including a range of “more affordable” sports cars – affordable being defined as cars starting at over £100,000 for the basic model.

McLaren launched five new models in 2015 with over half the components and parts used in each car manufactured in the UK. The company reinvests a fifth of its annual turnover of £475.5 million into research and development.

Banks drag feet over savings rate rules
Big banks are dragging their feet, despite being told by the City watchdog, the Financial Conduct Authority, to admit to the poor rates they pay savers. Their approach is making it hard for savers to see when their returns plummet. Cuts are being made to an average 100 accounts a month and some customers are left unaware that they are earning next to nothing on savings.

The FCA has issued rules to make it easier for people to understand what rate of interest they are being paid. They were expected to come into force in July, but banks and building societies won a re-prieve until December. Under the changes, banks must put the rate no more than a click away from an online account home page. The rate must also appear prominently on the annual statement. Rates on accounts on sale, as well as older ones, must be displayed on bank’s websites and be kept up to date.

Historically, many banks have failed to meet these standards. In the past three years, there have been nearly 4,000 rate cuts to savings products, despite the base rate being frozen at 0.5% for nearly seven years. In the past, rates tended to move with the base rate, but that is no longer the case.

Contactless payments in UK rise by 250%
The UK has turned into a “cash-second” economy as the number of contactless payments rose by 250% in 2015, according to Visa Europe. One-in-seven transactions using Visa cards in 2015 were completed using contactless payment technology, compared with one-in-25 a year earlier.

With ever-increasing numbers of people using cards, mobiles and wearable technology such as watches to pay for goods and services, Visa Europe saw its 2015 revenues soar by a quarter. The Transport for London network is Visa’s biggest contactless outlet, but 60% of contactless payments are now made outside London.

Across the UK, the amount spent on cards increased by 9.6% in 2015, while the number of transactions completed using non-cash methods grew by 11.5%.

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