Don’t be Negative!

You may have read in the press recently about Negative Interest Rates, which requires the Bank of England to charge a rate of interest to hold a cash deposit. Concerns are circulating that our high street banks will charge the public to leave our money with them, however, that is an incredibly unlikely scenario.

Negative Interest Rates would only apply to large institutions that require the security of substantial sums deposited with the Bank of England such as high street banks and larger PLC Companies. UK banks are required to lodge surplus capital with the Bank of England and are normally paid a rate of interest for doing so. Negative interest rates would require the banks to pay the Bank of England a rate of interest on their money.

The idea behind this move is to encourage the Banks to lend the money out to businesses and charge a modest rate of interest, rather than sitting on piles of cash that will cost them the interest charged by the Bank of England. This is designed to speed up the money supply, prompting investment and growth so aiding our economy.

Negative Interest Rates are not designed to be borne by consumers like you and me because if we thought we were going to be charged to keep our money in the bank, we would simply withdraw all our savings and stuff them under the proverbial mattress. As we know from the Northern Rock saga of 13 years ago, banks do not have enough liquidity to pay out all our cash deposits, so they would fold pretty quickly if that happened. The Bank of England does not want to promote a run on the banks!

Mind you, with the typical bank deposit account paying around 0.01% in interest, we are already in negative interest rate territory when you factor in inflation. Consequently, we are likely to see better growth potential from real assets such as Equities and Bonds over the next few years but we are unlikely to be charged to hold our money with our bank.

D. Muirhead

Don’t Panic Pike!

Last week the Headlines screamed that the UK economy had constricted by 9.9%, the greatest downturn in our collective fortunes since that well known catastrophe, the Great Frost of 1709. You’ve got to love the press, they do dig out some great trivia!

But if we look at our household finances, it’s hard to tell that there has been a recession at all because most of us have been protected from the worst of the economic fallout by the government, which has acted as a giant shock absorber, protecting jobs with the furlough scheme and businesses with the Loan schemes.

According to The Times (Friday 12th Feb) the Resolution Foundation has found that UK companies have increased their cash buffers by £118 billion since the start of 2020, whereas over the previous four recessions, cash holdings fell by an average of £40 billion.

In aggregate, the UK has emerged from the worst recession in three hundred years with both the household and the business sectors in good health. Household expenditure dropped by 10% in 2020, yet average wages rose. Because households were unable to spend their increased earnings, they have built up “accidental savings” of as much as £250 billion, Andy Haldane, the Bank of England Chief Economist has estimated.

According to Haldane, the economy is a “coiled spring”, ready to unleash all this latent spending into significant growth within the next 12 months. There is no guarantee that this will happen, however, judging by the prepared spending of those who have missed their holidays over the past year or so, it’s going to be a bumper year for consumption.

So, despite the mawkish headlines, there seems no need to panic on the state of our economy. We are in hibernation and we will spring into action once the pubs open!

D. Muirhead

Welcome

Welcome to my first Blog, designed to keep you informed about relevant financial and lifestyle ‘stuff ‘ that has a positive impact on your personal and financial wellbeing. The first section of each Blog will be more of a ‘Speed Read’ with a more in depth analysis below for those of you who want the detail.

I work with around 230 family groups, in some cases helping 4 generations of the same family. You would be amazed how much we all have in common, sharing very similar values, ethics and lifestyle goals. Money is the great enabler, allowing us the freedom to live our lives in comfortable independence and occasionally creating incredible memories for ourselves and our families. It is a great privilege to be part of your lives, I take my responsibility for your wellbeing incredibly seriously.

I hope you enjoy the content of my Blog, please do not hesitate to suggest any subjects you would like me to focus on and do please contribute to the discussion forum. Thank you, once again, for allowing me to assist with your personal, financial and lifestyle planning.

D. Muirhead