BANKING
Banks pull in profits while savers see little rate reward
Analysis shows that Britain’s five largest banks - Lloyds, NatWest, HSBC, Barclays and Santander - as well as the biggest building society, Nationwide, have raked in tens of billions of pounds by increasing borrowing rates by more than they pay savers. Between them, they pulled in £44bn in net interest income, the difference between what the companies charge borrowers for loans and mortgages and what is paid to savers in interest. James Daley of consumer finance group Fairer Finance said: “Banks have used rate rises over the last 18 months as a pay day for shareholders at the expense of their customers,” adding: “Many savings accounts are still paying pitiful rates of less than 1% at a time when base rates are at 4.5%.” Meanwhile, analysis by the i shows that high street banks earned almost £5bn in extra profits by not passing on interest rate rises to savers. Annual reports show banks collectively saw £4.8bn in additional earnings during 2022 owing to interest rate rises. This was up from £28bn in 2021 to £32.8bn in 2022. Harriet Baldwin, chair of the Treasury Select Committee, said banks are “keeping easy access savings rates low for their most loyal customers while reporting higher profits. With mortgage rates on the rise, it's clear the banks have more to do in this area."
Banks call for tech firm action on fraud
A group of banks has warned Prime Minister Rishi Sunak that big tech firms should help reimburse fraud victims, saying fraud “should not be seen just as an issue for the UK’s banking sector.” Nationwide, Santander, TSB, Starling and Handelsbanken say that the responsibility to tackle fraud goes beyond the banks involved, arguing that “a fraud strategy that fails to mandate action on all actors involved in the fraud journey and collective responsibility for the harm done to consumers, will never be effective.” The letter warns that fraud is having a “material impact on how attractive the wider UK financial sector is perceived by inward investors.” “Online fraud poses a strategic threat to the prosperity of the UK and impacts the credibility of, and confidence in, the economy and financial sector,” the banks argue. Data from UK Finance shows that £1.2bn was lost to fraud last year, making the UK the “fraud capital of the world.”
Mortgage rates edge toward 6%
A number of banks increased rates for home loans on Friday, with analysis from Moneyfacts showing that the average rate on a two-year deal has risen from 5.92% to 5.98%. For five-year fixes the average rate rose from 5.56% to 5.62%. Nationwide and Progressive said interest rates on some fixed rate deals would go up by as much as 0.55%, while Skipton added up to 0.4%. NatWest and Clydesdale Bank have made changes in recent days, while Coventry Building Society said it intends to re-price its deals. Landlords have not been spared, with several lenders confirming higher rates on buy to let home mortgages. The average two-year fixed rate rose from 6.13% to 6.21%, while the average five-year deal jumped from 6.13% to 6.17%. Data from UK Finance shows that, on average, repayments on new loans accounted for 20% of borrowers' gross incomes between January and April. This is up from 17% in 2020 and marks the highest level since it hit 23% during the financial crisis.
Home loan costs to rise by £3k a year
Annual mortgage repayments for people looking to remortgage their homes are set to rise by £2,900 next year, according to the Resolution Foundation. The think-tank says total annual mortgage repayments could rise by £15.8bn by 2026. While analysis from Moneyfacts shows that the average two-year fixed-rate homeowner mortgage is currently at 5.98%, the Resolution Foundation does not expect the average two-year fixed-rate mortgage to fall below 4.5% until the end of 2027. It predicts that the average two-year fixed rate deal will hit 6.25% later this year. Simon Pittaway, senior economist at the Resolution Foundation, said the “mortgage crunch” is on track to increase total mortgage bills by £15.8bn, with those remortgaging next year set to see their costs rise by £2,900 on average.
Zopa adds executives
Digital bank Zopa has drafted in several new executives as part of a leadership shake-up before an expected flotation. Peter Donlon will serve as chief technology officer, having held the same role at Moonpig, while Kate Erb, a qualified chartered accountant, joins as chief operating officer.
INTERNATIONAL
Wall Street job cuts set to pass 15,000
Citigroup has announced 5,000 redundancies, telling investors it expects to shed the roles by the end of Q2. The bank’s investment banking and trading departments are set to be hardest hit. Citigroup’s decision means job cuts at Wall Street banks are expected to hit 15,000 this year. While Goldman Sachs cut 3,200 positions in Q1, Morgan Stanley plans to axe 3,000 jobs this quarter and Bank of America is cutting 4,000 positions by the end of June.
FINANCIAL SERVICES
Regulator and Chancellor at odds over BigBang 2.0
The Government may be hindered in its efforts to slash red tape across financial services, with Financial Conduct Authority (FCA) officials arguing against easing regulations on short-selling rules. While Chancellor Jeremy Hunt has pledged to relax regulations as ministers look to deliver a post-Brexit “Big Bang 2.0,” the City watchdog is opposed to any material relaxation of the EU-era regulations. A source who has taken part in roundtable meetings with City stakeholders has told the Sunday Telegraph that while the FCA is keen to maintain a lot of the existing rules, “the Treasury wants to present the current rulebook as EU overreach and is looking to cut red tape.” They added that the FCA “seems keen to pour cold water on” the Government’s “direction of travel” in regard to trimming down regulations. A Treasury consultation on reforming short-selling rules closed last month. The “call for evidence” sought views on changes to reporting requirements, public disclosure rules, emergency intervention powers, and an exemption for market makers.
FCA restricts movement of assets by OAM
The Financial Conduct Authority (FCA) has restricted the movement of cash and assets from Odey Asset Management (OAM). This comes after OAM saw increased investor redemptions after founder Crispin Odey was removed over allegations of sexual misconduct. The asset manager has already shut down one fund and blocked withdrawals from three others. Sources say the firm – as well as associate firm Odey Wealth Management - has agreed voluntary restrictions with the City regulator. MPs on the Treasury Select Committee last week wrote to the FCA to question the regulator's supervision of OAM and Mr Odey.
Binance can continue US operations under SEC agreement
Binance has agreed a deal with the US Securities and Exchange Commission (SEC) that allows the world's largest cryptocurrency exchange to continue to operate in the US while it battles fraud charges. The SEC alleges Binance operated as an unregistered securities exchange. Meanwhile, Binance is being investigated by French authorities, with officials looking at its anti-money laundering procedures and whether it illegally advertised its services. Separately, the exchange has confirmed its departure from the Netherlands after it failed to obtain a licence from the country’s central bank.
Youngsters lured into crypto schemes
Financial advisers have voiced concern that young people burdened by student debts and struggling to get onto the housing ladder are being lured to invest in 'get rich quick' crypto schemes. A poll by Schroders saw 68% of advisers say they are concerned over young people investing in crypto and digital assets. This is more than three times higher than last year.
Pep talk from Columbia Threadneedle
Jeremy Smith, head of UK equities at asset management firm Columbia Threadneedle, has called for a shake-up that would see the return of personal equity plans. Peps allowed people to invest tax-free in the stock market, encouraging direct ownership of shares over holding funds.
Ombudsman tries to calm compensation fears
Abby Thomas, chief executive of the Financial Ombudsman Service, has sought to ease finance sector concern over the consumer duty, saying she has “no interest” in pursuing “spurious” compensation claims.
MANUFACTURING
Manufacturers lift 2023 outlook
Manufacturing trade body Make UK has revised up its outlook for the year, saying it expects factory output to fall 0.3% this year compared with a 3.3% contraction predicted three months ago. This comes amid strong demand for aircraft and electronics. Make UK has kept its forecast for growth in 2024 unchanged at 0.8%. James Brougham, senior economist at Make UK, said: “Manufacturers are seeing a gradually improving picture, but the word 'gradually' is doing a lot of heavy lifting.” Make UK expects the overall UK economy to grow 0.4% this year and 1.3% in 2024.
REAL ESTATE
Asking prices dip in June
Figures from Rightmove show that asking prices have slipped slightly this month. The average asking price from new sellers dipped by £82 in June, to £372,812. This marks the first time in six years that prices have fallen in June. Rightmove said the market has entered its “summer slowdown” earlier than usual. On the possible cause, Tim Bannister, Rightmove’s director of property science, said: “There have been some significant increases in fixed mortgage interest rates over the last few weeks, piling pressure on to very stretched budgets.” Looking ahead, Mr Bannister said: “We expect asking prices to edge down during the second half of the year which is the normal seasonal pattern, and while we sometimes re-forecast our expectations for annual price changes at this time, current trends suggest that our original forecast of a 2% annual drop in asking prices at the end of 2023 is still valid.”
BTL profits hit lowest level since 2007
Buy-to-let profits have fallen to their lowest level since 2007, with net profits for landlords with mortgages dropping below 4% in Q1 2023, compared to an average of 23% between 2014 and 2021. The decline in profitability is due to 12 successive increases in the Bank Rate, which has risen from 0.1% in 2021 to 4.5%.
RETAIL
Tesco benefits from shoppers switching from upmarket rivals
Tesco's like-for-like sales rose by 8.2% to £14.8bn in Q1 2022, with UK like-for-like sales, excluding fuel, up 8.8% in the 13 weeks to the end of May. Sales of Tesco's Finest range were up 14.9%, and the company claimed a ninth consecutive period of switching gains from upmarket competitors. Tesco CEO Ken Murphy said prices would continue to ease in the second half of the year, but it was difficult to predict how long high levels of inflation would remain.
ECONOMY
Confidence in BoE's inflation action dips
Public confidence in the Bank of England’s ability to tackle inflation has fallen, a poll from the Bank shows. As part of its quarterly poll, the Bank asked whether respondents thought it is “doing its job to set interest rates to control inflation.” The proportion satisfied minus the proportion dissatisfied was -13%, down from -4% in February. The survey saw 57% of those polled say they expect rates to rise further in the next year, down from 58% in February’s poll. While 16% said they thought increasing interest rates would be good for the economy, 37% feel they should go down. More than a third thought the Bank’s inflation target of 2% was “about right.” On average, respondents expect inflation to be at 3.5% in 2024 and 2.6% in 2025. Reflecting on the responses, Myron Jobson, senior personal finance analyst at Interactive Investor, said: “There appears to be a great sense of dissatisfaction with the UK’s central bank over its grip on inflation among the members of the public who participated in the poll.”
Bank set to hike borrowing costs again
The Bank of England is expected to deliver its thirteenth consecutive hike in borrowing costs this week. Some analysts believe the Bank could opt for a half-percentage point rise as it looks to tame inflation, a move that would take the base rate to 5%. It would be the first time Bank officials have approved a half-percentage point rise since February and Sandra Horsfield, an economist at Investec, said such a move would be “aggressive.” While Consumer Price Index inflation has peaked, core inflation is still rising at 6.8% a year. The Bank is hoping its rate-setting decisions will bring inflation closer to its 2% target.
OTHER
Financial education lacking
Three-quarters of Brits feel their financial education was inadequate or non-existent, impacting their ability to navigate the cost-of-living crisis. A study commissioned by Santander found that 69% of Brits feel they have struggled to cope with the current cost-of-living crisis due to a lack of financial education at school. Just 26% of young adults aged 18-34 feel they were taught a sufficient level of financial education at primary school, while 29% say this came later, during their secondary school years. Overall, three-quarters of the 2,000 adults polled believe their financial education in their school days was lacking.