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Back in 2000, I sold Richard Holway Ltd to Ovum and received a ‘substantial’ amount of cash in return. My financial adviser said that although I could get 7% interest on this at the time I should budget on 5% as this was the average interest rate over the previous 25 years and would be a good benchmark for the next.
Even earlier, in 1988/89, I remember my mortgage repayments tripling and an interest rate of over 12% being applied. My next door neighbour chose bankruptcy. I just managed to struggle through.
Even earlier than that, in the 1970s, I remember the pity that was afforded me from my Stateside and European friends. The UK was ‘The sick man of Europe’. We seemed doomed to be in the third league for ever.
The contrast today is so marked that I sometimes have to pinch myself. The UK now has the fastest growth rate of any developed nation. The IMF continually ups the outlook. Yesterday unemployment fell again – to 7.1%. About the lowest in any developed nation. 280,000 new jobs were created in the last three months and employment, at 30.15m, was an all time record. Even youth unemployment fell – but, at 940,000 is still far too high. All these new jobs are being created in the private sector which has more than compensated from job losses in the public sector.
On top of that we have BoE base rates at 0.5% - unchanged for 3 years. Rather than the 5% I was told I could ‘bank’ on in 2000, I struggle to get much more than 1% on my cash savings.
As I have said in my Predictions for 2014, I really fear for the consequences of the inevitable rate rise. Everyone I talk to with a mortgage would find even a small increase extremely difficult. If BoE base rates rose from 0.5% to 5%, it would be a disaster for most. Given that the current fantastic GDP growth in the UK is largely fuelled by domestic consumption, the risk to that growth is equally huge.
Also, as I said I believe this will become a political issue in the run up to the General Election in 2015. The Conservatives will want the electorate to finally feel that their standard of living is improving. A rise in mortgage payments will completely negate that. Although an interest rate rise might seem good news for oldies like me with savings, if it crashes the Stock market and therefore our pension schemes, it will be a hollow victory.
And if you think all this has nothing to do with the UK SITS sector, you would be both wrong and naïve. I remember Philip Hughes, the founder of Logica (now CGI) saying back in the 1970s “We all drink from the same soupbowl”. Indeed we do.
