Fear of the next rate hike

THE Beast from the East is not the only storm the public is worried about. If you look closely at the latest numbers from trade body UK Finance, the threat of higher interest rates is already having an impact on household and business behaviour.

For the first time in four years, the figures show that households and businesses cut their borrowing in January.

Although gross lending was up on an annual and monthly basis, overall lending and lending by UK banks is below the monthly average over the past six months.

Consumers are switching to credit cards with low charges as well as paying off outstanding credit – reducing overdrafts and personal loans – while the amount going into savings is falling.

The numbers are not big but they do suggest a wind of change. Unsecured lending was down by 0.2pc in the year to January while personal deposits made with High street banks are the lowest for two years. Money going into IsAs was also lower by £1bn on the month, and has been declining now for nine months in a row. so too was the gross value of new personal loans made by lenders, down by 15.7 per cent to £1.7bn.

on the mortgage front, news was more mixed. Lending bounced back nearly 10pc to £21.9bn in January, but that was after a sharp slump in December.

It is too early to know whether this is because consumers rushed to take advantage of mortgage deals on offer ahead of new rate rises expected in the spring, or because of any sustained confidence in the housing market.

It is not a good sign that the number of new loans was down by 5pc, and that mortgage approvals fell almost 10pc in January compared to a year ago.

There was also a big leap in the number of people remortgaging in the hope of getting better deals ahead of the next rise in rates. Ten-year fixed-rate mortgages are edging up already from their all-time lows. No wonder people are worried: savills estate agents calculates that a 1pc rise in interest rates adds around £10bn to the country’s mortgage bill, or around £930 more a year for an average householder.

More bleak was the ‘wait and see’ picture emerging from business. Companies are building up cash reserves – deposits grew 7pc over the past year – suggesting bosses want to keep buffers for spending, while borrowing showed the sharpest fall for three years.

The one bright spot was that manufacturing companies – which are benefiting from a lower exchange rate – increased their borrowing, although lending to construction and property-related businesses is still low.

Taken together, the figures suggest that consumers are battening down in the expectation of higher interest rates and that incomes will stay squeezed for some time to come. The lessons of the last crash appear to have been learnt.

Bumper pay

DIRECToRs of FTsE 100 firms earned a combined £1bn last year – that’s a mean pay for the 1,277 directors of £837,571 each.

It’s the first time that pay for all FTsE 100 board directors has been collated. It should provide meaty ammunition for shareholders getting ready for protests at the coming season of annual meetings, where pay is bound to be top of the agenda after the Carillion collapse and the extra-terrestrial pay packages that were awarded to Persimmon directors.

Following the Persimmon debacle – where 140 top managers stood to share £800m because there was no cap on the incentive scheme – investors must go through every annual report with a magnifying glass to avoid future scandals.

Taking flight

HIGHER interest rates are horrible for borrowers, but good news for investors.

sterling shot up to pass the symbolic $1.40 level at one point yesterday, after Bank of England policymakers indicated that interest rates will be on the move sooner rather than later.

The mood was also lifted by surprisingly bullish words from IAG boss Willie Walsh, saying that he’s not too concerned about how Brexit will affect his airline business.

It was an important intervention because the boss of the Anglo-spanish airline said he is ‘personally confident’ that a comprehensive air transport agreement will be agreed between the European Union and the UK. Does Walsh know more than he is letting on?

ALEX BRUMMER IS AWAY