November got off to an interesting start with a couple of unexpected political disruptions. The High Court ruled that the UK Government had to obtain parliamentary approval to evoke Article 50, potentially delaying Brexit. A week later followed the shock US election of Donald Trump. What these surprises may mean to the UK economy long-term or investing no one is quite certain – so for the moment it seems to be a case of watch and wait.
There were few positive news stories from high-street saving accounts this month - rising inflation coupled with stagnant interest rates means savers continue to suffer. As part of a focus on delivering better outcomes for people with cash savings accounts, the FCA has just published the last of its reports into savings interest rates and, effective immediately, announces new comparison rules for providers.
Trump election: What might this mean for investors?
Trump’s surprise election victory has opened the door to lots of discussions surrounding what it may or may not mean for investors. A Trump presidency will add to uncertainty around the global economy so do investors need to worry about what is going in the US? An interesting article in Your Money takes a look at the Trump victory, reflecting on what the UK has learnt from its European referendum in June. The shockwave of Brexit caused many investors to sell commercial property funds only for the FTSE to rebound in just a few weeks. In the case of Trump, perhaps short-term, knee jerk reactions won’t happen as many investors take a more ‘wait and see’ approach. “If Brexit provides a roadmap for investors, stock prices could be making new highs again by year end.” Trevor Greetham, Royal Asset Management. Many analysts believe that the initial impact on the UK economy from Trumps election, may be minimal, at least in the short term.
FCA lists banks and building societies paying just 0% on cash savings accounts
As part of its aim to deliver better outcomes for customers with cash savings accounts, the FCA has just published its final data set, highlighting the lowest interest rates available from 32 providers of cash savings accounts. The data shows both First Direct and HSBC as paying 0% on closed accounts.
At the same time, the FCA announced new comparison rules for providers, with immediate effect; “The new rules coming into force today will help consumers get the facts they need to make an informed decision about what to do with their savings.” Christopher Woolard, Executive Director of Strategy and Competition, FCA.
Bonds take a hit of $1 trillion
Donald Trump’s election victory saw Bonds take a big hit – their value plunging by $1 trillion globally. This is only the second time this has happened in the last twenty years. The general concern is that Trump will boost spending and thus accelerate an already growing global rise in inflation. “We do view the election of Donald Trump as a game changer…The strong bias toward fiscal expansion and inflationary policy represents a stark change to the malaise of recent years. This opens the door for the Fed to hike in December, but also more quickly in 2017 and 2018 than previously expected.” Adam Donaldson, head of debt research, Sydney-based Commonwealth Bank of Australia.
Inflation falls in October but long-term forecast looks gloomy
Somewhat unexpectedly October saw inflation fall. However, any relief is likely to be short-lived since it has generally been viewed as a temporary blip and inflation is likely to be back on the rise next year – eroding the value of our cash and savings. And, as we saw from the FCA’s recently published list, there a very few high-street savings accounts that could beat the BOE’s inflation forecast of 2.7% next year.
Interest rates aren’t looking any rosier. In November's inflation report announcement Mark Carney suggested that interest rates will be kept at a record low right through to the end of the year. With some, such as David Hern from the British Chambers of Commerce, suggesting that we are unlikely to see a first increase in interest rates until Q3 2017.
A glimmer of hope in light of rising inflation as the Guardian’s November analysis of key performance data indicates that the UK economy is showing surprising resilience post-referendum.
High street misery continues for savers
Savers continue to suffer from the lethal combination of continued low interests, uncertainty around the UK’s economic outlook, stagnant wages, and the likelihood of a significant rise in inflation over the next year. Indeed, according to calculations made by P2P lender Octopus, people with savings in a typical high street savings account could actually lose money in real-terms. Based on the BOE’s inflation forecast of 2.7%, interest rates remaining at 0.25% and using an example of a typical high street deposit account paying 0.76%, a bank account with £10,000 in it today will be worth just £9,669 in two years.
Innovative Finance ISA’s trickle on to the market
In April this year the government announced that peer-to-peer lending activities would be eligible for a new Innovative Finance ISA. This would enable savers using direct lending platforms to receive tax free interest (the ISA investment limit for the 2016/17 tax year is £15,240 per person, rising to £20,000 in 2017/18).
However, despite the IF ISA being available for months, currently there are only a small number of Innovative Finance ISA’s on the market, this is because to offer an IF ISA a direct lending platform must first have received full FCA authorisation. P2P lending rating agency 4thWay note that 77 platforms are still stuck waiting for full FCA authorisation – including ten of the largest P2P lenders.
November did see the launch of UK’s first ‘green’ Innovative Finance ISA. P2P platform Abundance announced its new IF ISA that targets green energy projects.
Autumn statement and the key take-aways for savings and pensions
Chancellor of the exchequer, Philp Hammond delivered his maiden statement on 23rd November. What were the key takeaways for savers ?
The annual adult ISA allowance limit will increase to £20,000 in April 2017 and the Junior ISA limit will rise to £4,128. National Savings and Investments will launch a new savings account in the latter part of 2017. The expected return rate is 2.2%, with a term of 3 years and a maximum balance of £3,000.
The state pension triple lock ( inflation, average earnings or 2.5% - whichever is the highest) will remain in place until at least 2020 after which it will be reviewed. However, the annual allowance for saving into a pension has been cut for people who have already started take money from their pensions. From April 2017 those people who have ‘drawn down’ will only be able to pay in £4000 a year - down from £10,000.
*Warning: nothing in this article should be construed as advice. Your capital is at risk