Five charts that tell the story of 2017
Hidden stock market bargains and the rise of cryptocurrencies were some of the year’s key trends, writes Laura Suter
This year saw the London stock market reach record highs, the cryptocurrency craze become mainstream and the Bank of England finally raised interest rates. Here we look back at five of the biggest financial stories of the year – and what they may mean for 2018.
Bitcoin mania
Bitcoin’s stratospheric rise over the course of 2017 made it the most talked-about investment of the year – if not the decade. While discussions in pubs and in the back of taxis centred on whether people should “invest” in the cryptocurrency, many people warned that doing so would mean losing your shirt.
Early investors have profited the most, while a year-end fall in the price (of 30pc) wiped out the gains for many latecomers. Someone who put in £1,000 at the start of 2017 would have around £14,000 now. However, if that same £1,000 had been invested at the end of the first week in December the investor would be sitting on a loss today.
Many claim that the lack of a physical asset behind Bitcoin means that anyone who buys it is just speculating. There are also fears that security breaches could lead to large falls in the price.
Proponents of the digital currency, and the “blockchain” technology behind it, retort that it represents a significant shift in the financial system.
However, there are more than 700 cryptocurrencies on the market, so, while the technology may remain, Bitcoin may not necessarily remain the most popular.
Mortgage rates rise
The early part of the year saw mortgage rates hit successive record lows, thanks to the “easy money” policies of the Bank of England. However, its decision in November to raise Bank Rate from 0.25pc to 0.5pc has already begun to hit home owners. Immediately affected were those on “tracker” rates, which rise and fall in line with Bank Rate, or standard variable rates.
Someone with a £150,000 repayment mortgage on which the rate rose from 3.75pc to 4pc would face an extra £252 in annual mortgage repayments. Those who owe £300,000 can expect to pay £504 a year more.
The Bank has signalled further interest rate rises in 2018, suggesting that there is only one direction for mortgage rates next year. Borrowers with standard variable or tracker deals have been urged by experts to look at switching to a fixed-rate loan.
The current cheapest three-year fix costs 1.49pc a year, while the cheapest five-year fix is at 1.65pc. By contrast, standard variable rates are typically 4pc or more.
However, those with smaller deposits have been spared rate rises so far (see chart, right). On average, those with a 10pc deposit, many of whom will be first-time buyers, have seen a fall in the rates they are offered over the year.
Meanwhile, those with a 25pc deposit have seen a rise. However,
The FTSE 100 headline figure hides a divided market, affected by Brexit
those with lower deposits will still pay higher rates.
Inflation returns
Inflation rose sharply this year, with the “Brexit effect” on sterling leading to higher prices. The fall in the value of the pound after the EU referendum led to an increase in the cost of imports.
The rises continued this year, and, coupled with higher energy prices, meant that inflation surged.
The consumer price index measure of inflation hit 3.1pc in November – well above the Government’s target of 2pc. The last time it was higher than this was in March 2012. The retail prices index (RPI) measure rose to 3.9pc. The RPI is widely discredited but still used as the basis for price rises in a number of areas, such as business rates, student loan interest and some rail fares.
With savings rates still close to historic lows despite some small improvements this year (see right), savers have faced a double whammy of low returns and inflation eroding the real spending power of their money. Compounding this have been the sluggish wage increases experienced this year.
Savings rates start to recover
Savings rates have risen this year, partly thanks to the rise in Bank Rate and partly thanks to increased competition from smaller banks and building societies.
However, there is no doubt that savers need to be savvier with their cash (see story, left). Those who leave their money in many high street banks’ standard savings accounts could be getting interest of 0.05pc or less. The average, according to the Bank of England, is just 0.1pc – less than half the rate seen last year.
However, the top easy-access savings account now pays 30pc more than in January this year, while the top fixed-rate savings bonds pay 40pc more.
Competition from “challenger” banks, or relatively unheard-of smaller providers, has driven much of the improvement. Larger providers are able to borrow cheaply from the Bank of England, which means they have little incentive to raise savings rates to attract deposits from customers in order to lend to borrowers.
Experts expect this trend – the smaller, less-established banks that lack access to the Bank’s scheme being keenest to attract new savings business and so raise rates – to continue next year.
‘Brexit stocks’ left behind
The FTSE 100, the leading UK stock market index, hit record highs in 2017, but the headline figure hides a divided market, largely as a result of Brexit.
Those companies that are perceived to be focused and reliant on the British economy have seen their share prices languish relative to those of companies that make most of their money overseas.
Analysts at Bats Indices have created the “Brexit 50/50” indices. These take Britain’s 100 biggest companies and split them into halves on the basis of whether they derive most of their revenues domestically or abroad. Since early June 2016, those with the least UK exposure have seen average share price rises of 33pc. Those more focused on the domestic economy have suffered share price falls averaging 3pc.
Prominent fund managers have already picked up on this trend. Neil Woodford, who runs more than £10bn for clients, recently described parts of the UK stock market as a bubble that will “inevitably” burst and warned that investors were undervaluing Ukfocused companies. These companies, he said, will rebound.