From contactless use to Eurozone deflation - want to catch-up on the biggest financial stories of the month? Janet Hontoir, Academic Course Leader for ifs University College's BSc (Hons) Banking Practice & Management, takes a look at some of the biggest financial news stories of the month.
1. Eurozone in deflation after oil price crash
Figures from Eurostat, the statistical office of the EU, show that annual inflation in the eurozone, measured by the HICP (Harmonised Index of Consumer Prices), was –0.2% in February 2016. This negative figure compares strikingly with the January figure of +0.3%. It is an average of many individual prices and there were big differences in price performance in different sectors. Prices of services actually rose on the year by 1%, of food alcohol and tobacco by 0.7% and of non-energy industrial goods by 0.3%; but energy prices fell by 8%. These data suggest that the ECB may have to introduce more expansionary measures.
Eurostat (2016) Euro area annual inflation down to –0.2% [Accessed 1 March 2016]
BBC (2016) Energy price slump sends eurozone into deflation [Accessed 1 March 2016]
2. Oil prices rise as production is cut
Oil prices have risen sharply since the beginning of February, from a low of $30 a barrel mid-month to $36.5 at the end. This is a reaction to reports earlier in the month that Opec countries had agreed to cut their oil production and this has been reinforced by the news of a meeting between Russia, Saudi Arabia and Qatar due to take place in March. For the global price to rise, production must fall but no major producer wants to lose out on revenue so a concerted approach is necessary. However while Opec is large and powerful, its 13 members cannot control other countries’ industries. One factor pushing the price up is the fall in US production, with energy firms cutting the number of oil rigs.
BBC (2016) Oil prices spike on output meeting [Accessed 1 March 2016]
BBC (2016) Oil falls despite Saudi-Russian output deal [Accessed 1 March 2016]
3. Public sector borrowing falls but may miss target
Figures from the Office of National Statistics show that annual public sector borrowing fell by £10.6bn between April 2015 and January 2016 to £66.5bn so far. The January figure was actually a surplus of £11.2bn, which is normal in January as revenue is received from income tax via self-assessment and from capital gains tax; but this year the surplus was £1bn more than the year before. The overall picture is that total public sector net debt (excluding the banks) stood at £1,581.6bn at the end of January. This is £52.7bn more than the previous January and comprises 82.8% of GDP but this, according to the Office for Budget Responsibility, is actually a fall of 0.1% of GDP on January 2015. This is attributable to public sector receipts from asset sales in Lloyds Bank and in UK Asset Resolution. However the OBR also points out that the January surplus was actually £1.1bn lower than the expected figure and that the Treasury is not on course to meet its borrowing target for the year.
Office for National Statistics (2016) Public Sector Finances: January 2016
[Accessed 1 March 2016]
Office for Budget Responsibility (2016) Commentary on the Public Sector Finances release: January 2016
[Accessed 1 March 2016]
BBC (2016) George Osborne ‘faces government borrowing challenge’ [Accessed 1 March 2016]
4. HSBC to stay in London
HSBC’s Board has unanimously ‘decided to remain headquartered in the UK’. It says that the bank’s strategy involves it supporting ‘world trade and investment flows’. The UK is an ‘important and globally connected economy’ which has an ‘internationally respected regulatory framework and legal system and immense experience in handling complex international affairs’. The fact that London is a vital financial centre and has a large pool of talent in the relevant areas makes it the ideal home base for an international bank such as HSBC. The bank also makes it clear that Asia is at the heart of its strategy and intends to do more investment in the ASEAN region. The City of London is a financial hub which supports the internationalisation of the renminbi and is expanding its connections and trade with China.
HSBC (2016) HSBC decides to remain headquartered in the UK [Accessed 1 March 2016]
BBC (2016) HSBC to keep headquarters in London [Accessed 1 March 2016]
5. Lloyds and RBS publish their financial reports
Lloyds Banking Group has reported an annual pre-tax profit of £1.6bn for 2015, a fall of 7% on the £1.8bn made during 2014. One of the reasons for the lower figure was that the bank increased its 2015 provisions for PPI compensation to £4bn, after the FCA said that it might impose a 2018 deadline on compensation claims. Lloyds has paid out more compensation for PPI than any other bank - £16bn in total. Lloyds has decided to make a total dividend payment of 2.30p per share, its second dividend payment after six years of not being able to declare any dividend.
Conversely RBS has reported a loss of £1.98bn for 2015 (the 8th year of loss), partly due to a charge of £3.6bn to cover the costs of conduct and litigation, many in the US. It also set aside £2.9bn for the cost of its withdrawal from 25 of the 38 countries in which it operates, and a further £600m for PPI claims. The underlying result was a profit of £4.4bn but lower income from interest payments meant that this was less than the £6bn underlying profit made in 2014.
Lloyds Banking Group (2016) Investors and Performance [Accessed 1 March 2016]
RBS (2016) Annual Results for the year ended 31 December 2015
[Accessed 1 March 2016]
BBC (2016) Lloyds profits fall in PPI claims [Accessed 1 March 2016]
BBC (2016) RBS shares slide as losses continue [Accessed 1 March 2016]
6. Payment Systems Regulator calls for more innovation and competition
The Payment Systems Regulator has published a review of the ‘ownership and competitiveness of the infrastructure which supports the payments systems’ ie Bacs, Faster Payments System and LINK, the cash machines network. A small number of banks owns both these systems and VocaLink, the infrastructure provider which processes the payment of state benefits, salaries and household bills. The review publishes evidence to show that the ownership of such a vital provider by such a small number of banks is adversely affecting innovation and competition in the payments sector and it suggests that the banks should sell their stakes in VocaLink. The report is now open for consultation.
Payments System Regulator (2016) Banks should sell their stake in UK payments infrastructure to help increase innovation and competition [Accessed 1 March 2016]
Payments System Regulator (2016) Interim report: market review into the ownership and competitiveness of infrastructure provision [Accessed 1 March 2016]
BBC (2016) Big banks should loosen control of payments system, says watchdog [Accessed 1 March 2016]
7. Financial Services Vulnerability Taskforce set up
A Financial Services Vulnerability Taskforce has been set up by representatives of a number of trade associations, consumer groups and charities, including the British Bankers’ Association, Age UK and Citizens’ Advice. It aims to improve the experience and outcomes of financial services customers who have difficult personal circumstances and it has published a report which outlines recommendations for best practice. Its priority is that vulnerable customers should be treated fairly and with empathy and sensitivity.
The report makes three recommendations. Firstly customers should be able to give ‘one-stop notice’ of their personal circumstances when buying different products from the same organisation. Secondly it should be easier for family members and friends to support a vulnerable customer. Thirdly frontline teams should have the flexibility to take action outside normal procedures if this is in a customer’s interests.
BBA (2016) Financial services establishes new gold standard for customers in vulnerable circumstances
Financial Conduct Authority (2015) Occasional Paper No 8: Consumer Vulnerability [Accessed 28 February 2016]
8. PPI compensation reaches £22.2bn
The National Audit Office reports that between April 2011 and November 2015, providers paid £22.2bn in compensation to more than 12m customers who had complained about being mis-sold payment protection insurance policies. It is estimated that claims management companies have received between £3.8bn and £5bn of the total compensation paid out. The report goes on to say that interventions by the Financial Conduct Authority ‘appear to have substantially reduced financial incentives for firms to mis-sell products’. But ‘the FCA lacks good evidence on whether its actions are reducing overall levels of mis-selling’ and ‘there is a risk that ‘the interventions may not be well coordinated’. The report concludes that banks have not handled the complaints well, since action was required to be taken by the FCA and the Financial Ombudsman Service. There has been ‘no noticeable fall in the level of complaints about mis-selling upheld by the FOS in the past 5 years’ and there is a large backlog to work through, which the FOS hopes to clear by July 2017.
National Audit Office (2016) Financial services mis-selling: regulation and redress [Accessed 1 March 2016]
BBC (2016) Claims management firms take quarter of PPI payouts: NAO [Accessed 1 March 2016]
9. Buy-to-let borrowers rush to beat stamp duty surcharge
Estimated figures from the Council of Mortgage Lenders show that ‘gross mortgage lending reached £17.9bn in January’, which is 21% higher than the same time last year and the highest lending January total since 2008. The CML says that this recovery is underpinned by ‘real wage growth, an improving labour market, competitive mortgage deals and government schemes and …. upcoming tax changes in the buy-to-let sector’. This refers to prospective landlords looking to beat the 3% surcharge on stamp duty for buy-to-let purchases which will be introduced in April. However the CML pointed out that growth will be limited by the ‘low number of properties for sale on the market’ and by ‘affordability pressures’.
Council of Mortgage Lenders (2016) Gross mortgage lending up 21% year-on-year [Accessed 1 March 2016]
BBC (2016) Buy-to-let landlords in rush to borrow [Accessed 1 March 2016]
BBC (2016) Banks report new year buy-to-let rush [Accessed 1 March 2016]
10. Contactless spending trebles
Figures released by the UK Cards Association show that spending on contactless cards rose by 3 times during 2015 to £7.75bn, up from £2.32bn in 2014. There were 1.05bn contactless payments during 2015, more than twice the previous year and equivalent to around 12.5% of all card transactions. Contactless use is now available on approximately half of all debit and credit cards and the upper limit is now £30. Debit cards were more popular than credit cards in December. Total annual expenditure via card was £622bn from 13.4bn individual transactions during 2015. Figures from Transport for London also show that contactless payment is now used for more than one million journeys each day.
The UK Cards Association (2015) Annual contactless spending trebles to £7.75bn [Accessed 1 March 2016]
The UK Cards Association (2015) Card Expenditure Statistics December 2015
[Accessed 1 March 2016]
Transport for London (nd) Contactless payment [Accessed 1 March 2016]
BBC (2016) Surge in contactless card payments [Accessed 1 March 2016