The Bank of England is expected to keep interest rates at a record low of 0.5% for the third month in a row as it continues to pump money into the economy.

The European Central Bank is also likely to retain its 1% interest rate following last month’s cut.

Economists in the City widely predict that the Bank of England’s Monetary Policy Committee will set rates at 0.5% again, the lowest level in the Bank’s 315 year history, as it seeks to breathe new life into the UK’s ailing economy. However, of more interest to economists is what the Bank says about its money printing plan, which has already seen £75 billion ejected into the economy.

However, the MPC may decide to delay the programme of quantitative easing, known colloquially as ‘printing money’.

Purchasing managers’ indexes in the past few days have suggested the recovery may be coming faster than expected. The pound has also reached its highest level against the dollar for seven months, suggesting that traders believe UK rates could rise sooner rather than later.

(more…)

Britain stands to lose its AAA credit rating that provides access to cheap borrowing on international markets after the international credit ratings provider Standard and Poor’s downgraded its estimation of the country’s economic outlook yesterday.

The agency expressed concern about the UK’s massive budget deficit and changed its outlook from “stable” to “negative”, prompting more calls from the Conservatives for an immediate general election.

S&P said that there was a “one in three” chance that it would remove the UK’s current AAA credit rating on its sovereign debt. A lower credit rating makes borrowing more expensive.

(more…)

Young people are significantly more pessimistic about the state of Britain’s finances than their parents’ generation, Post Office figures reveal.

According to a report published today by Post Office Financial Services, almost one in four 18-24 year olds in Britain believe that living standards will take over a decade to return to pre-recession levels. A further 34% of people in this age group believe that the UK will not experience economic recovery for another five years. The survey found that the younger generation is more pessimistic about Britain’s economic outlook than any other age group.

In comparison, only 5% of 45-54 year olds believe that the recession would go on longer than a decade, possibly because that generation has already lived through a recession and seen Britain’s economy grow since.

(more…)

UK consumers have accumulated almost £1.5 trillion in personal debt, a charity has revealed.

A report released yesterday by debt charity Credit Action revealed the extent of the personal debt problem in Britain.

According to the study, the total debt held by individuals at the end of February was £1.46 trillion - an increase of £34 billion over the last year. This figure included consumer borrowing on credit cards, along with retail and motor finance deals, loans and overdrafts.

However, the report noted the rate at which debt has been rising has slowed down considerably, with the debt total having risen by £116 billion over the 12 months to January 2008. Whereas total personal debt in the UK rose by £1 million every 5.3 minutes in January, it increased by the same figure roughly every half hour in February.

(more…)

The government is planning to ban credit card cheques as part of a crackdown on high-risk lending.

Legislation will also be introduced to prevent credit card companies from raising a customer’s credit limit when this has not been requested - a practice used by firms to encourage customers to get into more debt. Currently Britons owe £53 billion in credit card debt.

“We are concerned that people may be tempted to borrow irresponsibly if credit card companies increase borrowing limits without this being requested by customers, or send out unsolicited credit card cheques,” said Consumer Affairs Minister Gareth Thomas.

“It’s vital we protect consumers at this time and we are exploring these issues carefully,” he added.

Credit card cheques function in a similar way to cheques on current accounts. They offer an alternative means of drawing on a credit card account when the card itself is not accepted, for example to pay a trader. However, they often carry more expensive charges than credit cards, with fees of up to 3% and typical interest rates of 20% or more, and do not offer the same level of protection against faulty goods.

(more…)

The average interest rate on instant access savings accounts is now barely above zero, figures show.

The Bank of England said that instant access accounts, offered an average interest rate of just 0.17% at the end of February, down from 2.69% at the same time last year, and 0.28% at the end of January. Customers with branch-based notice accounts are also seeing little return for their savings, as the February rate dropped to 0.18%, half that of a month earlier.

This figure does not reflect the half a percentage point drop in the Bank rate in March, which has resulted in some banks dropping their rates further.

The average interest rate for cash ISAs was 0.96% at the end of February, down from 1.38% at the end of January and 5.06% from a year earlier. Bonds, on the other hand rose slightly on average, from 2.49% at the end of January to 2.56% at the end of February. However, this was a significant drop on the 5.21% average rate a year ago.

(more…)

The Office of Fair Trading (OFT) is to shut down more than a dozen companies offering repayment plans for people struggling with debt.

The regulator said that the businesses in question had been posing as non-profit organisations in order to attract customers by using web addresses similar to those of well known debt charities. However, they are actually commercial enterprises.

The OFT believes that many customers have already fallen for the companies’ deceptive marketing, and has written to 13 firms telling them to shut down 27 websites deemed to be misleading. The watchdog has warned that companies who refuse to comply with the ruling could lose their consumer credit licences and face prosecution. The OFT has not yet named the companies.

(more…)

A charity has warned that levels of personal borrowing in the UK are unsustainably high, and that the effects of the credit crunch will leave many borrowers bankrupt.

Research from the Citizens Advice Bureau shows that people turning to the charity for debt advice owe an average £16,971 through credit cards and personal loans - two thirds more than in 2001 and nearly 18 times their monthly household earnings. It would take 93 years for such customers to pay off their debt at an affordable rate, said the charity.

CAB chief executive David Harper has called the figures “sobering”. Worse still, they are based on information collated before the credit crunch really took hold, when jobs were more stable than they are now.

(more…)

UK consumers are switching from credit cards to debit cards as the pressure on liquidity mounts, according to payments association Apacs.

In 2008 credit card spending increased just slightly from £124 billion in 2007 to £126 billion, while spending on debit cards rose 9% to £245 billion from £224 billion. The use of cheques fell by 10.4% compared with the previous year.

Debit cards accounted for nearly three quarters of card transactions last year, and the number of debit cards in circulation overtook the number of credit cards. The number of credit card holders fell by 2% last year, indicating that more people are trying to reduce their personal debt during the credit crunch.

A report from May last year suggests that the use of cheques id in “irrevocable decline” after 350 years in use, since fewer stores are accepting them and other payment methods are becoming more common, such as payments made using a mobile phone.

(more…)

The Bank of England has reduced the interest rate to 1% - a record low - in an effort to boost the UK’s ailing economy by encouraging more lending. This marks the fifth interest rate cut since last October, when the Bank Rate stood at 5%.

The Bank said that the rate cuts together with various government initiatives will give the economy a much needed boost by providing “a considerable stimulus to activity” as the year progresses.

However, there are concerns among business leaders that the latest interest rate cut will do little to ease the economic crisis as banks are still reluctant to lend to each other in the current climate.

Nationwide, Barclays, Lloyds TSB, Halifax and Skipton Building Society have said they will pass on the latest rate cut to customers with standard variable rate mortgages.

But some banks and building societies are worried that savers will feel they have been “punished” by the move and pull out of savings accounts, hindering the funds available to societies to lend as mortgages.

(more…)