Flagstone Weekly Update - 20 November 2018
20th November 2018
- Number of savings-rate rises in the deposit market halved month-on-month
- Rates on closed savings accounts outperform those open to new customers
- Inflation remains static in October
- 30s is the decade of greatest saving
- FTSE European 350 Bank Index fell slightly by -1.4% over the last week
- ITRAXX Europe Senior Financials 5-year CDS Index deteriorates by +13.5% over the last week
There were far fewer savings rate rises in October than September, suggesting that the positive effect of August’s base rate rise is already on the wane. Research from Moneyfacts.co.uk highlights that depositors need to continue to be pro-active if they are to identify and secure better rates, which is exactly what the Flagstone platform empowers clients to do.
In October there were 147 products which benefited from a rate increase, less than half the 309 increases in September, and the lowest number since last July when just 90 accounts saw a positive uplift.
The number of savings rate increases outweighed the number of cuts for the 21st consecutive month, by 147 to 46. Most of this activity can be ascribed to challenger banks.
A Moneyfacts study of the savings market has highlighted that the returns available on deposit accounts no longer open to new customers exceed the averages achievable from the equivalent accounts, now available from the same provider.
The average rate paid across the market on legacy closed instant access accounts (dating back to November 2016) is 0.19% higher (at 0.60%) than the average equivalent product currently available from the same provider (at 0.41%).
In stark contrast to these poor market rates, two instant access accounts offering 1.40% are currently available to Flagstone clients.
The Consumer Price Index (CPI) rate of inflation has remained static at 2.40% after rises in fuel costs and domestic gas prices were countered by a reduction in food and clothing costs. The announcement, from the Office for National Statistics (ONS) surprised analysts, who were expecting a slight rise to 2.50%.
The ONS's head of inflation, Michael Hardie, said: "Prices paid by consumers continued to rise at a steady rate, with falls in food and clothing offset by rising utility bills and petrol, as crude [oil] prices continued to rise."
Inflation remains above the Bank of England’s 2.00% target. The Bank expects inflation will slowly reduce but is preparing to raise interest rates in the coming years to meet this target.
People in their thirties are the greatest savers, according to new research from Charter Savings Bank, setting aside 58% of their disposable monthly income every month. People in their twenties set aside 53%, while people in their 50s and 60s are saving 35% of their disposable income every month.
The study found that the disposable income of people in their 30s is £486 (after bills), not very far away at all from the largest figure of £506 for people in their 70s. But their disciplined saving means that they hold back £280 a month; nearly 50% more than the national average of £191 a month.
The data indicated that men have nearly double the disposable income of women (£600 compared with £300 a month), resulting in women saving only £134 a month compared to “252 for men. 11% of adults reported that they’ve never opened a savings account, rising to 20% for people in their twenties. Further, only one tenth of savers put aside money each month which they don’t touch.
Paul Whitlock, Director of Savings at Charter Savings Bank, said, “The important thing is to try and save as much as you can afford to, from as early an age as possible, and seek out the best rates possible. It may not seem worth putting a small sum away each month, but it’s a brilliant habit to get into, plus that money soon grows.”
BANK FTSE AND CDS INDEXES
The FTSE European 350 Bank Index again fell slightly over the week, falling by -1.4% to 3,811 from 3,867 as further signs emerge that the trading issues between the U.S. and China is having an adverse impact on global trade. This included a contraction in the German economy for the first time in three years, mainly due to a fall in car sales to China. The market was also adversely impacted by the political chaos in the UK over the proposed Brexit withdrawal agreement.
The ITRAXX Europe Senior Financials 5-year CDS Index spread (series 30) rose sharply by +13.5% over the week, to a more expensive 99.9bps from 88.0bps, on market fears that the Brexit withdrawal agreement proposed by Mrs May will be rejected by the UK Parliament, although an ad-hoc summit meeting of European leaders has been arranged for the 25th November which is expected to approve the terms of the proposed agreement. This has affected the spreads of major UK banks in particular which have risen in a range of between 17.2% (Barclays plc) and 24.3% (Lloyds Bank plc).