What Did Britons Pay and Earn on Borrowings and Savings When the UK Last Hit Five Per Cent Inflation?
UK Last Experienced Five Per Cent Inflation in 1984, 1988 and 1991
(firmenpresse) - LONDON, UNITED KINGDOM -- (Marketwire) -- 10/19/11 -- - Today's savers hold 3x more than 1991, yet earn a third of the income
- In 1984, '88 and '91 savers earned double the rate of inflation, today on average they receive just a fifth - Mortgage borrowers hold 4x the debt of 1991 borrowers, yet pay only marginally more in interest (additional GBP 3 billion) - Today's homeowners typically borrow at just 60% of the rate of inflation, versus almost three times the rate of inflation in 1988
Over the last 30 years Britons have lived through periods of higher and lower inflation than five percent, however in 1984, 1988 and 1991 we experienced inflation similar to what we have today - five percent.
Analysis by HSBC shows what savers and borrowers were earning and paying in those years and why it is different now.
The first obvious spot is that in each previous year the average savings rate was almost double the rate of inflation, meaning no matter what inflation did to erode the value of money, savers still received a real return on their savings.
The second clear highlight is that the Bank of England base rate was roughly double the inflation rate on the three previous occasions. Today the base rate is just one tenth of the inflation rate.
Lastly, mortgage rates topped 11 per cent on each previous occasion. Looking specifically at borrowing, as it holds the key to our current interest rate anomaly, the chart below shows outstanding borrowings and the nation's private interest bill in each year:
Compared with today's total mortgage balances of GBP 1,242bn, we hold over ten times the mortgage debt of 1984. However the really telling fact is that as a nation we are only paying GBP 3 billion more in interest on our today, than we were in 1991, even though we have four times the mortgage debt outstanding. This shows the true scale of benefit borrowers are experiencing from the low interest rate environment.
The inverse is the case for savers.
In 1991, the total amount of savings deposits held by UK households was GBP 360 billion, attracting an average interest rate of 9.7%, creating a total saving interest income for the nation of GBP 34.92 billion. Today savers hold just over GBP 1,000 billion (GBP 1 trillion) in savings deposits, yet the average rate these deposits are accruing interest at is just 1.14% (almost 4% below official CPI inflation), offering a total savings interest income for the nation of GBP 11.4 billion.
Savers are subsidising borrowers
To summarise, when comparing that last time we experienced 5% inflation in 1991, today's mortgage borrowers hold four times the level of debt, yet pay only marginally more interest (GBP 39.9bn vs GBP 36.4bn). In contrast, today's savers hold three times the value of 1991's depositors (GBP 1tn vs GBP 360bn), yet they receive less than a third of the savings income their fellow savers earned 20 years ago.
Bruno Genovese, HSBC's head of savings commentated: "The Government and Bank of England have been clear their priority is low interest rates. Without them, the Government will pay more to fund its deficit and more consumers may struggle to meet their debt repayments. The hope is that eventually, low rates will tease growth out the economy by stimulating businesses and consumers to invest and spend."
"With this in mind, savers must make the best of their situation, use their tax efficient savings allowances, hunt for the highest rates available and perhaps offset any remaining savings against their mortgage if they have one. We expect inflation to fall next year, but interest rate rises are still some way off."
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Notes to editors:
(1) CPI figure, not RPI.
(2) September 2011 average tracker rate, Bank of England Bankstats
(3) September 2011 average of household deposit rates, Bank of England Bankstats
(4)Extrapolated from ONS and Bank of England data which started in 1987.
Average mortgage and saving rates, source CML and Bank of England.
Credit cards rates are historic Barclaycard rates.
RPI data used as data available beyond 1988 and was official target rate in relevant years.
Fast facts on Inflation:
HSBC Bank plc: HSBC serves 16.1 million customers in the UK and employs approximately 52,000 people. In the UK, HSBC offers a complete range of personal, premier and private banking services including and . It also provides commercial banking for small to medium businesses and corporate and institutional banking services. HSBC Bank plc is a wholly owned subsidiary of HSBC Holdings plc.
The HSBC Group: HSBC Holdings plc, the parent company of the HSBC Group, is headquartered in London. The Group serves customers worldwide from around 7,500 offices in 87 countries and territories in Europe, the Asia-Pacific region, the Americas, the Middle East and Africa. With assets of US$ 2,691bn at 30 June 2011, HSBC is one of the world's largest banking and financial services organisations.
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HSBC
James Thorpe
020 7992 1433
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Datum: 19.10.2011 - 10:34 Uhr
Sprache: Deutsch
News-ID 77713
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