Financial Review 6th May 2016

European central Bank boss warns of risks to growth
Eurozone inflation could turn negative again this year, the European Central Bank (ECB) chief, Mario Draghi, warned as the bank kept interest rates unchanged. He claimed inflation should start rising before the year is out and pick up further in 2017, but admitted eurozone risks to economic growth remain “tilted to the downside”. He called on European governments to act more decisively to boost growth.

In March the ECB cut the main interest rate from 0.05% to 0%, while the bank deposit rate was cut further from -0.3% to -0.4%. The negative rate means that banks must pay the ECB to hold cash – a move intended to encourage more lending to businesses. Inflation in the eurozone stood at zero last month, well below the ECB’s target of close to 2%.

Paul McCartney tops the chart as the UK’s wealthiest musician
Adele has been named as Britain’s richest ever female musician, with £85 million, according to the Sunday Times Rich List. The only female singer with a bigger fortune on the list, which also covers Ireland, is Ireland’s Enya on £9m.

Adele is now ranked at number 30 in the overall UK and Ireland music millionaires list, above Sir Cliff Richard, Gary Barlow and Kylie Minogue. Top of the tree in the music rich list was Paul McCartney, followed by Andrew Lloyd-Webber, U2, Elton John and Mick Jagger.

Bookies have a rough ride at Cheltenham
Bookmaker Ladbrokes has said this year’s Cheltenham Festival was its “worst in living memory”. All bookmakers were hit by a string of favourites winning at the festival, but Ladbrokes argued that rivals were offering bets at levels that did not make business sense. It also confirmed it has a £3 million liability if Leicester City win the Premier League.

Despite those negatives, revenues were up 10%, and the bookmaker said the Grand National winner, Rule the World, at 33/1 was a better earner for the business.

Retail sales record 35th month of growth
Retail sales dropped 1.3% in March, compared with February, a bigger fall than was expected. However, the figures from the Office for National Statistics (ONS) also found sales were 2.7% higher than a year earlier, making it the 35th consecutive month of annual growth. Average store prices, including petrol stations, were 3% lower in March compared with a year earlier. That suggests inflation in the UK will remain low.

Growth in online sales continued to massively outstrip the High Street. The value of online sales was 9% higher than a year ago. While these figures looked positive, the British Chambers of Commerce said that they pointed to a weakening economy, because growth was slowing in the retail sector.

Invoice fraud nets £126m as 5,000 account holders are scammed
Con artists were successful in scamming more than 5,000 people into sending them money via bank account transfers last year. That was a 70% plus increase on the previous year and meant losses from this form of fraud amounted to £126 million – an average of £25,000 for each victim.

Fraudsters were able to con bank account holders into diverting planned payments to them, rather than the company intended. This is known as ‘mandate’ or ‘invoice’ fraud and is based around fraudsters hacking into personal or corporate email systems. Typical examples are where people are told by their ‘bank’ to transfer funds because of fraud, or where people buying property receive an apparently legitimate instruction to transfer funds to an account. The advice now is never to do either just on the strength of a phone call or email.

Credit stats worry debt charity
Latest figures from the Bank of England show consumer credit increased by £1.9 billion in March 2016, equivalent to an annualised increase of 9.7%, the most since December 2005.

“Consumer credit has again risen rapidly and this is an area of growing concern,” said Peter Tutton, head of policy at StepChange Debt Charity. “If consumer credit continues to rise quickly, it risks increasing the vulnerability of households who are already struggling to make ends meet. The last time consumer credit increased at this rate was in the lead-up to the recession, when credit was widely available and many households became seriously indebted. Creditors must carry out affordability checks and lend responsibly to ensure mistakes made then are not repeated.”

Emergency services contract boosts EE
BT-owned mobile operator EE is seeking coverage advantage over rivals with a pledge to expand its 4G network to 95% of the country by 2020. This will be partly funded by a contract it secured with the Home Office to connect the emergency services over the 4G network. Its 4G network now covers 60% of the UK. This coverage pledge came alongside plans to bring all of EE’s customer call centres back to the UK by the end of this year.

EE is the most complained about broadband provider, and third most complained about mobile operator, according to Ofcom data. It also came bottom in a recent customer satisfaction survey by the regulator. To improve service, it said it will shut its Indian call centres and create 600 new jobs in the UK and Ireland, reflecting BT’s similar strategy for improving its own dismal record.

Commodity prices to stay below last year’s levels – World Bank
The World Bank has raised its forecast for global oil prices by 10% for 2016 but at the same time has warned that all commodity prices will remain well below last year’s levels. In January the World Bank pointed to $37 a barrel for the benchmark oil price, but in its latest quarterly report it raised the forecast to $41 due to “improving sentiment and a weakening dollar”. It still expects all energy prices – including oil, natural gas and coal – to remain heavily depressed compared with last year, but has revised its January prediction of a 24.7% slide to a 19.3% fall compared with 2015.

The Bank said the global commodities slump spells trouble for resource-rich nations that enjoyed a surge in investment during the commodities market boom of the 2000s. This is bad news for European agriculture, since dairy and grain prices both track global commodity markets.

Leaving EU could cost UK households £3,200, claims OECD
Leaving the EU would be the equivalent of imposing an additional tax of one month’s income on UK workers, a leading economic body has said. The Organisation for Economic Cooperation and Development (OECD) said economic growth would be lower outside the EU as the UK could not negotiate a better deal on trade and investment.

This claim was criticised by Brexit advocates and a group of economists advocating a Leave vote in the referendum. The OECD, which represents the world’s developed econ-omies, said leaving the EU would result in 3% lower UK economic growth than would otherwise be the case by 2020, rising to 5% in 2030 – costing households on average £3,200.

UK ‘Disposable’ income increases yet again, claims Asda survey
People were £12 a week better off in March compared with last year, even though the cost of essential items rose for the first time since late 2014. UK households had £198 to spend on extras, up from £186 in February, marking the 17th consecutive month of double-digit growth in ‘disposable’ cash, according to Asda’s Income Tracker. But, the cost of essential items increased by 0.1% in March, suggesting that prices of household goods may be starting to rise.

At the same time, wage growth across the UK has slowed since the end of last year, although not all regions experienced the same negative impact from lower earnings.

UK interest rates have been at a historic low of 0.5% for seven years and most economists do not expect them to rise until well into 2017. This means cheaper borrowing costs, which boosts consumer spending power.

Savers stash their cash as interest rates are so uninteresting
Over seven million people stash cash away in their homes, with around £1.3 billion languishing in piggy banks, teapots and even freezers, according to a survey by Virgin Money. This is said to reflect poor interest rates and the convenience of having immediate access to cash. Only 27% said they were happy with the interest rates accruing on their savings, with many adults saying their children now save more in bank accounts than they do.

As to where the money is in the house, 16% leave it on dressing tables and in drawers, while 14% still use old-fashioned piggy banks. On average, people said they would need to be able to generate at least £120 in additional interest a year to be persuaded to move their money.

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