Welcome to TheCreditCruncher.com

The Credit Cruncher was conceived to help you to keep up to date with credit crunch and recession developments, it provides some helpful credit crunch advice and it addresses personal debt. The Credit Cruncher also seeks to explain how the credit crunch started and shed some light on the worldwide recession. Recently, we have begun to look at how BREXIT will affect the UK economy. Please feel free to leave comments where relevant.

17 Oct 2016

How will Brexit change our Economic Outlook?

So, at long last, there is a new 'play-thing' for us amateur economists to pontificate over - BREXIT. It's not like we are completely out of the woods regarding our economy, and I dread to think what our national debt figure actually is - but the focus has certainly shifted off the good ole Credit Crunch lately.
I admit I am late to the table with this one, and had I been paying more attention to this blog, I would have broached the subject earlier, so apologies for that.

Cards on the table then - I was a 'Remainer', and it's not that I have any great love for Europe particularly, but I am against rocking the boat for no good reason other then a vague belief that Europe is somehow holding us back. I am in favour of the 'stronger together' philosophy hence I was in favour of the UK remaining united too. I find it odd that some Scottish politicians could want 'out' of the UK, but 'in' to Europe - but I'm not going to get into that on this blog.....

So the 'Remainers' lost and the Brexiteers won - fair play, we now have a slightly different political landscape to deal with, and some very tricky terrain coming over the horizon. I have moved on (others appear not to be able to do so), but the result was remarkable for a number of reasons.
I will happily accept that broadly speaking, there are some good points that we will gain from gaining a degree of independence from Europe, although I would maintain that we can't be sure that they outweigh the negatives. So I am happy to assert that many well-meaning Brexit supporters actually believe in a solid economic argument.
That said, there are evidently swathes of others who somehow thought that they were voting for some sort of ethnic cleansing to the point where they have been emboldened to shout obscenities at foreigners in the street. These foul types (NOT Brexiteers, but thugs who have seen Brexit as a means to some sort of white supremacy) have been sold a lie by UKIP who have emerged as little more than the BNP in a suit and tie. UKIP (where are they now?) were given an extraordinary amount of exposure considering how little influence they have on anything (Their biggest power base is in the European Parliament!! - you couldn't make it up...). Their mouthpiece Farage (where is he now?) painted a picture of an immigrant-free UK with a well-funded NHS, when he had not the means to bring it about - He 'won' a referendum, not a vote for seats of power. When the party was over, he freely admitted that he was not able to make any of his promises happen - and how could he? He's not even got a seat in Parliament himself - his party is a shambles, their policies are virtually non-existent.

Don't get me wrong please, my disgust at the situation is not because the vote was lost, this is not sour grapes - I am disgusted at how we were led to this point by people with no power and no plan, and now those who could see it was a terrible idea are left having to carry it out. Yet I am not an advocate of a second referendum - that to me would be a nonsense, it would be like Alex Salmond demanding a referendum on the Scots leaving the UK every year until he finally got the result he wanted. No, we must carry it through and make the best of the hand we have dealt ourselves. My real problem is as I mentioned earlier, the belief amongst mindless thugs, that this is a victory for 'Engerlanddd' in post-National Front and post-BNP Britain.

I am thoroughly English and proud of it, yet I would welcome any foreign national genuinely seeking asylum, seeking respite from awful regimes and terrible life-experience, seeking education and work - these individuals enrich and enhance our nation. I am ashamed of the rampant nationalists, and fervently hope their number remains small and insignificant. I am slightly concerned that in post-BREXIT Britain, a line has been crossed where it is becoming acceptable to regard 'foreigners' with suspicion and not a little hatred - Europe has been there before....

Well that's the political rant, I know not everyone will agree with me, and as long as you don't advocate thuggery, I am happy to discuss the pro's and con's of Brexit without getting overly excited. I am looking forward to exploring some of the questions that surround the huge issue of how exactly we are going to extricate ourselves from the European Union.

4 Aug 2016

Confirmed Base rate cut today

As expected, the news has just come through that the Bank of England has officially cut it's base rate for the first time in nine years, halving it from 0.5% to 0.25%.
Predicted growth in the UK economy has not materialised, and the Bank of England GDP forecast for 2017 has been slashed from 2.3% to 0.8%, citing changes in the 'economic outlook'. In effect pointing towards Brexit as a major factor.
The BoE has introduced other measures to go alongside the latest interest rate drop. A £60bn quantitative easing package has been announced alongside rulings that will more or less force the banks to pass on the base rate cut to their borrowers.
It has been calculated that the average mortgage saving will be around £20 per month, but it should be noted that only around one and a half million mortgages actually track the base rate. I am happy to say that my own mortgage does, but on the other hand, I have an endowment which will not meet the repayment target. Where I am saving on interest, I am paying extra off the principal to help to close the gap between likely endowment outcome and the principal amount owed.
An endowment is, of course an investment, so how will the interest rate drop affect investments? Simply put, if you had £10,000 invested, a 0.25% drop means you will receive £25 less than previously which should mean you get a measly £40 or so for your hard-earned cash. I can remember the days when you would expect to make a grand from a ten grand pot, so saving your money seems almost pointless if you are hoping to live off the interest.
The positives here are obvious for (some) home owners, but overall, with a falling GDP and little return on money in a deposit account, the general economic mood is not overly positive. That said, we are not currently on target for another recession, and there is every indication that there could be another base rate cut, which could leave us with an unprecedented zero percent base rate

Bank Base Rate drop expected today

After years of waiting for the next interest rate announcement, it may finally be announced today. Up until the Brexit vote, I am sure most commentators would have expected an interest rate rise to be the next Bank of England move, but post-Brexit Britain brings with it a somewhat less stable economic environment.
The new rate is expected to be a drop from 0.5% down to 0.25%, meaning an average mortgage saving of £20-£25 per month. Of course, many current mortgages are fixed rate and will not benefit from the drop.
More to follow when there is confirmation....watch this space

15 Jun 2014

Finally interest rates set to rise

Increasingly, even the most pessimistic observers are finding that the main economic indicators are signalling a strong recovery from the financial crisis some six or seven years later...

I am sure there will be politicians queuing up to take the credit just as there were those ready to apportion blame, but these things are notoriously cyclical - we always knew it would eventually resolve more or less regardless of the economic action taken by the various politicians.
The good news also comes along with the 'bad' news that interest rates are set to rise...and fairly soon. Again, we always knew this would be the case, but for those of us who have benefited from low mortgage rates, the reality of the end of the gravy train is just around the corner.
No definite dates as yet, but indications are that the end of this year or possibly early next year will bring a tentative rise in the current 0.5% base rate currently applied in the UK. I expect that it will be several years before the base rate reaches anything like it was before the dramatic drop five years ago.
Of course, I am calling it bad news as a mortgage-payer, but a net investor will be thankful that there is a prospect of getting a better return on investments at long last - also as my mortgage has an element of endowment, there is actually a kind of 'leveling out' of the good news versus bad news scenario even for me.
There is also speculation that this will slow down the property price rises that are starting to kick in particularly in London where housing is so tight, and seeing as it was in part, property prices that led to the original recession, this is possibly no bad thing...

Two basic questions remain then:

'When?' and 'How much?' there is a suggestion in the media that the rise will come before the general election in May 2015, maybe even well before. As for the new level, it will probably be set at 0.75% or possibly 1.0%. A full 1.0% would be more of a bold statement of intent and could be seen as a level that could be maintained longer-term, a mere 0.75% might leave the markets nervous wondering how long before the next 0.25% is added...
For those who have recently bought property on low interest mortgages, a rise in rates will be a new and unwelcome experience - although such a small change in rates is surely not likely to leave home owners without the means to pay their mortgages.
Personally I am currently still overpaying my mortgage, so for me it will simply be a matter of reducing my over-payment so that the overall outgoings remain the same.

Related posts:

Feb 2009 - imminent drop in interest rates
Mar 2009 - base rate set at 0.5%

21 Jul 2013

Signs of recovery

I have always said that recovery from this financial crisis was always going to be slow, and I don't mean months, but years maybe 5 or 6 realistically - and that's just an indication, not a prediction. So I don't take too much regard of the 0.5% growth predicted in the UK economy, to be fair 0.5% is better than -0.5%, but equally it's not a lot to get excited about. having said that, the evidence of building work going on around us at the moment is encouraging. I walked to work four times this week, and was struck by the amount of construction work that is going on. On the other hand, I walked through some flats that had been built in the last 6 or 7 years that were intended for the upwardly mobile - however they have seemingly now become part of a large social housing project, and starting to look a little less cared for.
Savings are down, which is no great surprise seeing as there is little available in the way of return for your investment, but inflation seems to push on regardless as wages are more or less static and therefore the nett result is that we are a little worse off year on year. The way that energy prices have risen over the recession is quite unbelievable, energy companies it seems, are determined NOT to be affected by the financial crisis and continue to hold us all to ransom, squeezing every last penny out of it's 'customers' or more accurately 'victims'.
We will come out of this, but it will take time, thankfully the lower interest rates are still keeping the mortgage payments low, so I am still able to overpay my mortgage - as with most people who have a mortgage, as a nett borrower, I am happy for interest rates to be low. In the long term however, investments such as pensions are also squeezed to pitiful growth figures.

27 Sep 2012

False Economy?

Whilst the economy needs steady management with long-term goals in mind, Modern politics does not really allow for long-term planning. Already the Greek population are striking against the government they only recently voted in, rebelling against austerity measures which are aimed at keeping the national economy solvent.

This feeling is not limited to the hardest hit of the European economies, grumbling about cut-backs is widespread, and if I am allowed to express opinion, I believe it is short-sighted to rebel against measures that will ultimately create a 'meaner and leaner' economy. The problem here is that the public are finding it hard to understand why the public purse has been tightened so suddenly, especially when they find themselves out of work when there are very few jobs to be had.

There needs to be a two-pronged approach, introducing more efficient use of public funds whilst enabling businesses to grow, however there is a problem in that putting more controls on bank lending means it is harder to obtain small business credit. Ironically, interest rates are at an all-time low, yet money is not avaiable to those that need it most

Here is another problem, we want to control the way that the banks take risks with loans, but on the other hand, we need the banks to fund regeneration in the economy - or do we?

With the reluctance (whether voluntary or forced) of the banks to lend out the required cash, other organisations are stepping in to lend a hand and provide a much-needed injection of cash. Maybe this will be a long-term change, a change in the way that industry is funded, maybe it will all get back to 'normal', but whatever happens, we are by no means in control of the economy yet which is why I believe only hard graft will get us back to an economic plateau, and only extraordinary diligience will stop this happening again in the future.

7 Jul 2012

The struggling economy

It is no surprise to this pessimistic blogger that the western economy is still not showing the vital signs of growth. From the start, it has been blatantly obvious that this current economic crisis is NOT 'man-flu' on a huge economic scale, but a serious disease that requires not only a painful cure, but a subsequent change in lifestyle. What ails the western system is more akin to a kidney disease, not only requiring on-going dialysis, but a donor kidney and if surviving... a new healthy regime.

Whether that new lifestyle involves bringing the bankers to heel is a moot point - George Osborne (UK Chancellor) is about to argue that Europe is wrong to strangle the banking sector by capping the bonus culture. Controlling pay is certainly an odd idea for what is supposed to be a 'free economy', and although I would like to see the banks take a hit, I would prefer to see them taxed rather than shackled.
Meanwhile the investigation into 'Libor' rate rigging is extending into Europe with Deutsche Bank also coming under scrutiny, while the Euro currency struggles to keep pace with rival currencies.
Let's be blunt - right from the start (barring a few rather silly optimistic predictions) it was clear that the credit crunch was no ordinary economic 'blip', and always had the potential for fatality (of the entire economic system). Every slight recovery was welcomed as a possible 'cure' when in reality we are looking at shallow remission at best. Every dip has been hailed as evidence of political incompetence, whereas it has just been the normal course of the disease.
The disease has been one of indulgence, so maybe a liver complaint would be a better comparison, where the patient will have to lay off the booze if they want to see a future? We are not out of the woods yet, anybody with an economic clue should be able to accept this, the fact that the crisis is not playing to our political agenda of 5 year plans is just a fact we have to get used to. Western democracy has only to look 5 years into the future because that is the normal period between elections - If I had a disease that was going to take 10 years to cure, I would rather not choose a Doctor who only has 5 years left to live himself...!

29 Jun 2012

UK banks under pressure

As Europe tries to sort out bail-outs and attempts to keep the Euro afloat, UK banks have scored a number of 'own-goals' in recent weeks.

We have Barclays being handed a massive fine of £290million, for it's dodgy dealings with banks rates.. within days we had RBS having catastrophic software problems that meant a massive backlog in their payment system. This has prompted the CEO of RBS to turn down any bonus that he would have been entitled to this year (whilst still maintaining that this was the result of previously existing systems).
Today we have the news that the big four banks have all mis-sold complex 'products' to small businesses designed to 'protect' the businesses from interest-rate fluctuations, but ending up as a massive weight around the neck of many a small business.

These news items taken separately are not earth-shattering revelations, but in the wake of the bank-inspired credit crunch, and the ensuing financial mayhem - we are reassured that the banks have done little to put their financial houses in any sort of good order. The banks seem regardless of their public image, ignorant of popular feeling and may yet feel the wrath of both regulatory authorities and the popular vote.

7 May 2012

What is double-dip?

It may sound like an option you might see on the sweets menu, but double dip is a sobering reality in the UK economy right now.

It has recently been announced that the long-anticipated double-dip recession is here - this gives us, initially, two questions to answer:
1) What exactly is a double-dip recession
2) What impact will it have on the economy

The answers are relatively simple whilst retaining the complexity that all things economic tend to gather around them. Economic terms are not deliberately 'woolly', but whoever wrongly termed economics as a science instead of an arts subject should be (in my humble and simplistic opinion) soundly whipped with their own economic model.
Recession is already defined in this post (click for the link) as being two straight quarters in which a decline in GDP (Gross Domestic Product) has been recorded. The most recent recorded recession has been blamed mainly on the Credit Crunch and in the UK, officially begun three years ago:
...and ended two years ago:

In real terms (spot the 'economic-speak'), the economy has been plotting a very wobbly course with tiny amounts of 'growth' being recorded and always threatening to drop straight back into decline.. When the figures for the last quarter were announced, it was the second negative figure in a row, therefore technically we are back in recession after a relatively short time of 'growth', and therefore we are in 'double-dip'.

So onto the second question... My own reading of the situation (for what it is worth) is that the economy although technically was out of recession for two years had never really established sufficient growth and therefore this latest headline announcement makes little difference to us. There is still not massive growth, everything is still very tentative although here and there, there maybe growth, in other places there is still decline to balance it out.
I think most economic observers will have to admit that an economy bumbling along with practically no growth, is pretty much the same as one that has just recorded a decline in growth as long as all the figures are so small.
To my mind, we are still in 'steady as she goes' mode whilst we wait for the emerging industries to shine through and the declining industries to reach their inevitable plateau.

Here's another question then... what happens if we come out of this and quickly into another period of decline - will it be triple-dip or double dip with a cherry on top?

16 Apr 2012

Economy Update

The latest news is that the UK economy is managing to steer a course around the rocks of a double-dip recession. Standard & Poors have endorsed the UK by retaining their triple A rating, having previously reduced both the USA and France to double A ratings.
Although we are some way from being able to state that the economy is firmly in recovery mode, there are a few green shoots showing through. There are still going to be bouts of closures and redundancies to be endured, but the overall picture is tentatively positive.

Of course, the UK is also still 'enjoying' the extended base-rate 'holiday' as the 0.5% rate is retained for the foreseeable future. Keeping this lower rate as a long-term policy helps to reinforce the 'steady as you go' feeling that has been a feature of the UK economic recovery. Admittedly, it is not great for net investors, but I suspect that there are very few of those around at the moment..!

15 Apr 2012

Credit Cards

Guest post

I know way too many people who abuse their credit cards, and then end up accumulating debt that is way more than they are able to handle. Thankfully, I was taught fiscal responsibility at a pretty young age, and think I have a good handle on my bills. This does not mean that I don't use my creditcard, in fact, the opposite is true. I use my credit card for most of the purchases I make. The difference between what I do and what others do is that I do not buy anything outside of my means just because I have a credit card that can delay the payments. I only buy things that I would be able to pay for in cash or using my debit card. I choose to use my credit card because, this way, I am able to accumulate points that I can use towards paying off my balance, gift certificates, hotel reservations, or even airline tickets. I always make it a point to pay off my balance in full each month, so I am never accumulating interest, which is really just a death sentence in the credit card world. This is not to say that I haven't accidentally developed a bill that was much higher than I anticipated. I always know that, even when I am really not happy about it, I have enough money to cover it somewhere. Generally I have enough in my checking account to pay the bills, but in those unfortunate circumstances where I do not, I can always transfer money from my savings account to cover the difference. I even have it set up so that if I forget to go on and pay the bill it automatically deducts from my checking account. I can see how sometimes you start to rack up your bill quickly if you are not carefully monitoring your spending, but I also have a hard time understanding how people make huge purchases that they know they do not have the money to cover with their cards. I have seen very few circumstances where that has ended well for the buyer, and I hope to avoid ever having to do that with my credit card.

12 Apr 2012

Budget 2012

The Government have learned a lesson this year, the lesson is that if you leak all the good stuff before the budget is announced officially, the media will concentrate on all the stuff you don't want highlighted...
The Good Stuff includes an increase in the amount we can all earn before tax, a staged reduction in corporation tax, removing child benefits from higher earners (not everyone will regard this as 'good stuff'...) and new taxes for gambling and gaming machines.
The biggest 'shock reaction' was to news that pensioners are not going to continue to enjoy their previous tax breaks. In actual fact, pensioners are merely being brought in line with everyone else when it comes to tax - although it has been called a 'granny tax' and presented as pensioners losing money, it has been done in such as way that the pensioners will not enjoy increased tax allowances until they are in line with working incomes.
The other big talking point has been the removing of the top-tier 50p tax rate - said to be intended to actually increase tax revenue - time will tell whether this is true, but whatever else it is, it is certainly a bold step. All-in-all, this looks t me like a budget that gives a lot to low earners, a little to middle-earners and what looks like a boost to top earners too. Of course, it will not please pensioners, but it also manages to boost small businesses too with the reduction in corporation tax.
Time will tell whether this is a 'good' budget, but I think I am willing to concede that it is not a bad one...