Inflation drops, savers suffer, and bonuses bandied about

Business banking news review: week ending 20 Sept 2012

The last week has been an absolute whirlwind of seemingly contradictory news, but lucky for you we’re here to help get it all sorted for you so you can get on with your life, satisfied in the knowledge that while the news might not always be good, at least you know what’s going on.

First up is some welcome news: inflation was down last month by 0.1 percentage points. The Consumer Prices Index declined from its July figure of 2.6 per cent to a marginally lower 2.5 per cent this past August, spurring hopes amongst savers currently locked in to rather abysmal interest rates on their savings accounts of possibly actually earning some cash at the end of the year, between the erosive effects of inflation and the cut the taxman takes.

The other measure of the cost of living, which usually runs a bit higher due to the inclusion of the mortgage lending sector in its calculations, also dropped. The Retail Prices Index dropped a bit more, falling to 2.9 per cent from 3.2 per cent, primarily attributed to the modest rise in pricing of utilities such as electricity and gas in compared to 2011’s massive increase.

However, against this backdrop lies the 0.5 per cent base rate set by the Bank of England, giving banks and building societies the excuse to cut their interest rates much lower than the 3.13 per cent needed to beat both inflation and basic-rate tax. In fact, there’s currently no easy access savers available on the market that meet that 3.13 per cent threshold after ING Direct cut its own rates down to 2.8 per cent, and even one year fixed term bonds top out just shy of the minimum at 3.10 per cent.

Of course, all this money is going somewhere, and if you were to think ‘I bet it’s going into the pockets of financial service executives,’ well congratulations: you’re right. Bonuses paid last year topped out at £37 billion, according to a new report released by the Office of National Statistics, with £13 billion of the total pouring into the wallets of those working in the financial services industry.

The figures are even more egregious when you take into account that the financial sector only accounts for 4 per cent of the entire UK workforce. Despite this, they managed to walk off with more than one third of the bonus pay given out.


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