While there has been much talk in the press with regard to the future direction of UK interest rates, there does not seem to be an awful lot happening at the moment.  So will all of the doom and gloom surrounding the economy actually make a difference?

There is no doubt that over the next 12 months we will see a reduction in UK interest rates, but the speed of the fall and level at which they will bottom out is not yet clear – it will be dictated by what happens over the next few months.  So why are UK rates set to fall?

UK rates will fall due to a mixture of the slowing US economy, which will affect the overall world wide economy, the falling UK property market and the aftermath of the credit crunch.  With so much doom and gloom around many people are asking why rates have not yet begun to fall yet – and they are quite right to ask the question!

The reason why rates are yet to fall in the UK is because of the perceived threat from inflation and the risk which it still may hold in the short term.  A sharp reduction in UK rates could easily fuel the flames of inflation, with the oil price recently hitting an all time high – and oil a major influence on the costs associated with the calculation of inflation.

As soon as the possible threat of inflation reduces we should see the start of lower interest rates and with the economic news set to get worse in the short term, that moment should not be too far away. 

A report released today claims that of the 3 million of the UK population who take on seasonal work from home, the vast majority will be earning less than the minimum wage.  This is the time of year when companies involved in postal campaigns and similar issues will look to recruit those desperate for additional cash for the festive period.

While it is actually illegal to employ anyone at a rate less than the national minimum wage, the problem is that these people are desperate for that extra few pounds and will do just about anything.  It is a sad indictment of the UK business world when people are paid literally a few pounds an hour for such menial and time consuming activities.  Lets not forget that these are vital part of many mail shots throughout the country, and due to the low pay offered the “employers” are able to pocket more profit for themselves.

So how can you fight back?

Unfortunately for every person who decides to drop out because of the low pay there are another 10 ready to take their place.  While many were initially attracted to the working from home philosophy, because in the main it compliments their life style which may involve child care etc, it is not easy going.

How do the companies get away with paying an illegal rate?

While the laws were initially set up to avoid situations such as the ones we are covering, employers are able to get away with it by publishing unrealistic hourly targets for output, which when put into practice may take substantially longer to complete – resulting in a reduced hourly rate from the one published.

While the vast number of the 3 million UK residents who take on such work are under paid, there are still some reputable companies out there who will pay you a fair rate for a fair days work.  They make take a little finding, and they may offer a different kind of work, but they are there.   

It has been announced that Halifax have begun the process of posting 25,000 contactless debit cards to a range of London based customers, in what they hope will be the beginning of a national roll out.  We have covered contactless cards in the past, these are the cards which do not require a security input for items under £10, you just flash the card past a reader.  The card also acts as a traditional debit card for larger amounts as well as an ATM card.

While the announcement will be welcomed by many retailers who find transaction costs high for smaller sales, it seems that we are taking a step back with regard to card security – surely the point of Chip and Pin (the supposed saviour of the banking system) was to ensure contact between the customer and the retail business.  The billions of pounds which have been spent on card security seem to have been forgotten in the rush to push as much through the tills as possible.

Even though the maximum amount of £10 is fairly low and will not interest all but the petty crooks, there is concern that slowly but surely the £10 amount will rise and rise until we actually arrive back at a contactless card. 

It seems as though the banking and business communities are finding it very difficult to arrive at an understanding for smaller sales, with current costs being effectively prohibitive and taking away much of a retailers potential profits – before their own cost are deducted.  Whether the contactless card will work or even be accepted is open to debate, but many believe that this is a major step backwards in the fight against the fraudster, and plays straight into their hands.

While it seems that the cost of so many different services and products depends upon where you live in the country, you can now add your pension payments to that with news that Legal and General have just completed a pilot a scheme which will see high pension payments in areas where life expectancy is short.  The scheme is now being rolled out nationally, although there are concerns that for those receiving higher pensions, people in other areas of the country may see their pension payments slashed.

Legal and General have also announced plans to consider the lifestyle of their customers as another factor for the level of pension payments they will receive, with concerns that the more complex system will allow pension providers to hide reductions and also slash their own costs.  Even though the difference between the top pension payments and the lower rates (varied by region) will initially add up to no more than two or three percent, there is obvious potential to increase this figure in due course. 

However, there are many supporters of the scheme with concerns that those living in low life expectancy areas are actually subsidising the payments of the more wealthy, affluent areas.  Perhaps there is something in the scheme , but then again what would happen if you moved from one area of the country to another in retirement? What would happen if you moved overseas?

There are still many questions to be answered, but it seems that the whole industry will now move down this path – another postcode lottery!

The recent rise in the housing market has seen many home owners sitting on potentially large paper profits, although some people still seem to be up to their eyes in debt.  It seems crazy that many people are being penalised by large debt repayments, or credit card balances which are running away from them, so what can they do?

It obviously depends upon the position you are in with regard to your mortgage, the value of your home and the amount of debt your need to address.  However, there are a number of options open to you including:-

Remortgaging your home to raise instant capital.  The main risk with this option is the potential to miss payments and run short of money, but if you are able to cover the payments at current levels you should be ok as interest rates should come down – or at worst, they are highly unlikely to move higher over the next 12 months.

Part remortgage.  For many people a part remortgage may well be the best solution, but again it depends on how much money you owe, and the amount of equity in your home.  You also need to ensure that you can actually afford the repayments.

Down grade your housing.  This is probably the worst case scenario for anyone who is deeply in debt, taking a profit on their home, paying off their debts and down grading to a cheaper house.  If you are in this much trouble then you probably need to take professional advice.

The idea behind releasing some or all of the equity from your home relates to the difference in interest rates.  While you may be paying in the region of 6% for a mortgage, you may be charged over 10% for your credit card debt.  In this situation it would seem a sensible idea to swap one debt for another, but at a substantially lower rate.

Do not rush into this type of decision as it may have a long term impact upon your life and financial situation – make sure you get it right!

While we have all seen the headlines about debt problems in the UK, falling house prices, etc, you would have thought that the banks would be struggling to make money.  Think again!

The only real way in which banks can lose money, from their traditional banking operations, is by writing off bad debts.  You may find this a little curious because surely as interest rates fall, their profit from each loan, each mortgage  and other instruments will fall – not always.

If you watch the interest rate which banks pay savers and charge borrowers, you may start to see a difference as interest rates fall.  The popular trick is to reduce savings rates by more than they reduce debt rates, thereby increasing the difference between what they can charge for loans, etc and what they will pay savers.  This then leaves the banks to use savers money to sell more competitive loans, when in reality it is the savers who are paying for this added competitive edge – an edge which sees their “turn” on savers money increase.

Can you imagine how much money the banks used to earn from current account holders, before they started paying interest on current account balances – this was money for nothing, and the banks were sorry to see this go!

So next time you wonder how the banks make their money in a falling market, you might remember the little tricks they like to play – at the expense of their savers!

Despite the ongoing credit crunch, the fall in the housing market and the mounting debt crisis which many in the UK are now suffering, it seems that the Bank of England are not too keen to reduce interest rates.  Why?

The Bank of England have built their reputation on an independent cautious approach to financial management, often preferring to see problems play their way naturally through the system, rather than providing false support in the short term.  The Bank also have a duty to keep inflation under control, hence the reason why UK rates are at today’s level.

While there are many people who will disagree with the approach of the Bank, they continue to closely monitor the state of the UK financial market, and where needed they will act.  Many people forget that if the Bank were to rush in and reduce interest rates we may see the rebirth of inflation, and the untold problems which that can cause. 

The balancing act between managing the economy using the array of weapons to hand, and managing inflation, is often very difficult to bring together.  The Bank have shown in the past that they have the bottle and determination to “do the right thing” because if they were to pander to all of the various associations around the UK, can you imagine the confusing signals this would lead to?

Short term pain, long term gain – this very much sums up the approach of the Old Lady, and she has been around long enough to see it all!

With the UK economy expected to show a downturn during 2007 and 2008, and the credit crunch still effecting the UK financial sector, many businesses are begin to wonder if their banks will be there if they need short term support.  While banks have been generally supportive of small, medium and larger businesses during the good times, the indications are that the support may well be ebbing away.

Many analysts are forecasting multi-billion pound write-offs and write-downs over the next 12 months, as the effects of the credit crunch are played out for all to see.  There is currently much activity behind the scenes, with many of the major institutions desperate to salvage what they can from some of their disasterous investments.  While we are not looking at a Barings style fiasco, it seems that many of these financial institutions may have entered into agreements which they did not fully understand – derivatives, cut and splice policy elements and large gearing seem to be the underlying problems.

Even though the world wide economy is expected to slow over the coming months, normally there would be a degree of support from banks to ensure that solid, profitable businesses are able to trade their way through any slow down.  

However, with the banks all reigning in their investments at the moment there has been a collapse in the internal money market.  While this will not last forever, and will slowly return as confidence picks up, it may leave some businesses short of additional capital in the short term.

As if we needed more proof that the credit crunch has left a lasting impact upon the UK finance market, the news that between 40% and 50% of all new credit card applications are being rejected is evidence enough.  It seems that the banks and finance companies are running scared, and perhaps taking a more balanced view of potential future problem accounts.  So what is really happening?

We are looking at a two tier effect with credit lines a little harder to come by and finance companies wary of taking on potential problem accounts as the economy looks to take a down turn.  While this situation will not last forever, there will be many observers in the Bank of England pleased to see finance companies taking a more sensible approach to credit.  So will this move effect consumer spending?

Whether or not consumer spending is materially affected in the short term is debatable with Christmas on the way, but it may well open the eyes of many consumers who possibly depend on moving from card to card.  Unable to effectively refinance their credit card debts, many may well need to pull in their belts in the New Year with a rise in debt problems expected.

 If ever the consumer was looking for a sign that credit may have got out of hand for some, now is it.  Whether the consumer will take any real action to alleviate the problem is another matter – we shall see.

Even though there have been some major advances in the detection of identification theft, you would be wrong to assume that all is well and you can let down your guard.  The crooks are becoming ever more ingenious in their approach and the methods used to obtain your details. As they say on the National Lottery advert – “It could be you!”

While there are many experts and observers out there who will claim that ID theft is under control and manageable, the truth is that it will always be with us.  The internet has opened up a whole new medium, a way in which they can steal your details without being traced, a medium by which they can obtain access to millions of people by SPAM emails.

There are many people out there who consider these crooks to be sophisticated and highly intelligent, when in reality they do not need to be.  It is very easy to fake a site to look like the original, set-up a fake email address and milk as many visitors as they can of their private details.  This is the main problem, it is not rocket science and as soon as one culprit is closed down, there are ten more ready to take their place.

The only way you can minimise the impact is not to answer unsolictored or strange emails, keep your details secret and check your bank account statements on a regular basis.  If you see anything which seems even remotely strange or incorrect, contact your service provider asap – it could literally save you thousands in the long term.