Revised official figures from the Office for National Statistics (ONS) show that for the last quarter of 2008 show that the UK economy shrank by 1.6% compared to the quarter before it.

This is the biggest fall in GDP since 1980, and is also slightly higher than the earlier 1.5% estimate.

The figures also showed that there has been an increase in the proportion of household income being saved, which therefore produces the highest saving ratio in three years.

The savings  ratio reached almost 5% at the end of 2008, compared to its negative number in the first quarter of the year, with the biggest jump coming in the final quarter of the year.

Economist at Deutsche Bank, George Buckley said: “on the face of it this rise is good news – it means that a large portion of the necessary rebalancing of the economy away from spending and towards saving has occurred already.”

Other statistics released by the National Savings & Investments (NS&I) has also shown that people are saving an average of £90 per month, compared to £87 in 2008.

Consumers Focus on Saving Rather Than Spending

This has been influenced by people borrowing less money, and last years’ fall in new mortgages and consumers cutting the amount they allow themselves to spend on other types of borrowing, such as credit cards.

The interest rate cuts that have been put in place by the Bank of England has also forced rates to a record low, seriously reducing the cost of some mortgages.

Vicky Redwood from Capital Economics, has said: “income from falling mortgage interest payments may particularly be saved.”

Overall, throughout the year the economy in the UK grew by 0.7%. The GDP has also decreased considerably from its 2007 high of 3%.

It is generally expected that throughout 2009, as a whole, the UK economy will shrink.

Household expenditure fell by 1% last year as the economy contracted, primarily, this is likely due to the fact that the output in the construction sector decreased by 4.9% over the final quarter, which has been revised from the original 1.1% prediction.

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Barclays have seen a jump in its shares after a report that they will not need more money if it joins the Treasury’s asset insurance scheme.

Shares in the bank rose by 24.1%, and have surged by 60% over the last week.

The bank was subjected to an “extreme stress test” by regulators, who concluded that they do not think the bank needs fresh capital.

The Asset Protection Scheme attempts to insure the riskier bank assets from further loss by using government money to insure them against it.

Barclays released a statement saying that it: “confirms, following [the stress test] and discussion with the FSA, that its capital position and resources, after exposure to the stress, are expected to continue to meet capital requirements which the FSA published on 19 January 2009.”

The Chancellor is hoping that the protection scheme will help restore confidence in the entire banking sector.

Not Out of the Woods Yet

Lloyds Banking Group and the Royal Bank of Scotland are already a part of the scheme. Lloyds shares have already increased by 9.3%.

However, the government has already taken over a 65% stake in Lloyds and has said it will insure up to £260 billion of the banks toxic debt. It is therefore unlikely, if the Barclays report is anything to go by, that Lloyds will require any further money from the government either.

Somehow, Barclays bank is among few that have been able, so far, to remain profitable during the financial difficulties, much unlike its peer companies, like Lloyds and RBS, which have recorded the biggest financial loss in corporate history and have therefore been part-nationalised.

Barclays was apparently considering earlier this month whether or not to join the new government scheme.

The FSA however, after conducting the review on the bank are not commenting on the findings.

The Bank of Ireland has also said it won’t need more loans from the Irish government after it got 3.5 billion euros of aid in February.

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There is to be an average rise of 3% on council tax for those in Band D areas of England, the lowest rise in 15 years, according to the Department for Communities and Local Government.

On an average home in the Band D area tax will increase from £1,373 to £ 1,414 for this tax year.

The general average rise per home will be 2.6%, taking the typical household council tax up from £1,145, to £1,175 from April 2009 to April 2010.

However, the LGA (Local Government Association), is begging the government not to put a cap on council tax this year.

Its minister John Healey said: “Most councils across the country are tightening their belts, which is exactly what the public wants to see.

“With a tough economic year ahead, councils will need to do even more to control costs and I remain ready to be tough with capping powers to protect council taxpayers from excessive increases.”

The LGA’s chairperson – Margaret Eaton has added that: “many councils revised down council tax rises this year to minimise household costs for residents.

“Given that town halls have made such efforts to keep council tax down this year, we would not expect the government to cap any councils.”

‘Insult to Injury’

However, the Conservative party believe that there should be no rise at all.

Carolin Spelman is a local government council secretary, and says that: “at a time when millions of workers are facing pay freezes or unemployment this year, it adds insult to injury to drive up bills by a further £41 a year, on top of previous years’ rises.

“Labour’s refusal to follow the example of Scotland and freeze council tax bills in England is unfair on English taxpayers, who yet again have received a raw deal.”

The government does plan to cap the council tax increase in the counties of Derbyshire and Surrey though. If Surrey follows through on this plan, it will be the second successive year it has decided to do this, the first time in 12 years.

These councils are examples of where council tax is shared between several bodies, including the council, police and fire services.

Therefore, the police authorities are allowed to set their own council tax rises as long as they don’t exceed a certain threshold, set out by ministers. Therefore, the local ministers can put a cap on the demands.

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Abbey has announced to 7,000 of its local solicitors today that it will no longer let them handle the banks side of the conveyancing process for house buyers.

The Law Society is currently in talks with Abbey, but describes their actions a “grave”.

The decision means that people planning on buying houses will have to pay the cost of an extra set of solicitors who will look after the lenders interest.

The decision to get rid of the solicitors service was unexpected, but the bank is claiming that the solicitors have not done enough work over the last 12 months.

‘Revoked with Immediate Effect’

In a letter to one of its solicitors firms in Fleetwood, Lancashire, Abbey wrote: “given the low volume of transactions dealt with by your firm during the past 12 months, I regret to inform you that your panel appointment has been revoked with immediate effect.”

Solicitors on the approved panel previously would have acted on behalf of the buyer taking out a mortgage, and would be relied upon by the lender to look after the lenders interests.

Their responsibilities also include ensuring money is passed on to the seller/ seller’s solicitor, and making sure the bank’s mortgage is registered as a charge on the property at the Land Registry.

The change means that when a buyer chooses a solicitor that is not on Abbey’s panel, Abbey will insist that another firm is involved to look after the banks paperwork, meaning that twice the cost has to be covered by the borrower. This could add up to an extra £250 in legal costs for the borrower.

‘Grave Importance’

Abbey is one of the UK’s leading mortgage lenders, and therefore the Law Society is trying to change its mind back. The Law Society’s president, Paul Marsh has said that no-one – not the Council of Mortgage Lenders or the Building Society’s Association – was aware of Abbey’s decision before it was announced.

He said: “I want to assure all members of the grave importance that we attach to this matter and the actions of the Abbey National.”

A spokesman for Abbey has said: “We have written to a number of firms that have undertaken few or no transactions with us over the past year to advise them that we will be removing them from our panel.

“We have put in place a process to deal with requests for reinstatement and each request will be evaluated on its merits.”

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The government have predicted that the Retail Price Index will show a year on year drop by the autumn, of up to 2%, which will affect the annual rate of personal pensions.

Were this to happen, some providers have said that they will reduce the payments on index-linked pension annuities.

Despite the fall, the government are promising that the basic state pension will rise by at least 2.5% even if the year-on-year prices fall.

Tom McPhail of financial advisors Hargreaves Lansdowne had the following to say about which pension annuities would be cut if inflation falls below zero.

“Axa, LV, Partnership, some of Standard Life’s annuities, some of Prudential’s annuities – these companies have said if RPI goes negative and you have one of these annuities, then your payment will go down.”

He added that others will not make the cut: “Norwich Union, MGM, and Legal and General have said your payments wouldn’t go down, they would just stay flat until RPI went back up above where it was before.”

Effects Will Start to Show Sooner Rather Than Later

It is thought that the Retail Prices Index may go negative as soon as March, which may affect some people very quickly.

Mr McPhail added that: “Generally annuity providers use the RPI figure three months before you took the annuity out. So if they go down this month that will affect people who took their annuity out in June last year.”

For those with state pensions, the news isn’t as bad.

State pensions are linked to Septembers RPI, and though the government has predicted that the RPI will fall to below minus 2% in the third quarter of 2009, they have also said they will not raise state pensions by less than 2.5% in April of next year.

However, they are not making such promises for people with Child Benefit, Jobseekers Allowance or Disability Benefits. If the annual rate of prices falls, these benefits will be frozen.

Another thing that will freeze if prices continue to fall is company pensions paid to retired workers from the public sector.

Tom McPhail said: “The odd one could [be cut] but it would save them very little money and upset a lot of people. So with a company pension you’re probably OK.”

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Online banking fraud in 2008 nearly doubled compared to previous years thanks to software that’s now available that enables fraudsters to track what you type.

The device is called keylogging, and enables fraudsters to gather passwords and credit card numbers.

Last year alone, online banking fraud reached a massive £52.5 million, compared to £22.6 million in 2007, and again, just £12.2 million in 2004, according to UK payment association – Apacs.

Losses due to fraud related to UK credit and debit cards also rose by 14%, reaching £609 million. However, most victims of card fraud aren’t liable and therefore get their money refunded.

Recent years has seen an increase in the number of people choosing to bank online, from the comfort of their own homes, as opposed to having to queue.

One Step Ahead

The problem of this is that fraudsters are usually one step ahead of consumers, and therefore, quickly adapt new technology. This has been seen clearly by the steady increase of internet banking fraud in the last few years.

The programmes that are used to target us by tracking our details usually find their way onto our computers via unsolicited emails.

A spokeswoman for Apac said: “The industry continues to remind customers to ensure that they have their computer’s firewall switched on and anti-virus software up to date.”

The introduction of card chip-and-pin numbers seemed to be doing the trick when it came to reducing card fraud, however, 2007 and 2008 has seen the number begin to rise once more.

Goods that are bought on the internet, over the phone, or via mail order are currently the number one target when it comes to card fraud. In these areas, pin numbers are not required, so it is hardly surprising that fraud in this area has risen by 13% to £328 million.

PIN Numbers Work

However, the most significant rise was 39%, which correlates to the number of people who take over other people’s accounts – ID theft.

Apac have admitted that, overall, card fraud losses have increased, but it says that if these losses are taken as a percentage of card turnover, these were actually falling.

It also pointed out that in the last 5 years, the most rapid acceleration in fraud was actually by fraudsters using cards overseas, especially in places where chip-and-pin is not in place. Apacs is therefore pressuring on many countries, including the US, to introduce chip-and-pin.

Anyone in the UK caught out by card/internet fraud is not liable according to the terms of the Banking Code as long as they have acted with ‘reasonable care’, and will subsequently be reimbursed.

However, the code also says that if the card is used before it is reported missing, or is someone knows a PIN, the victim has to pay the first £50 they lose.

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The Financial Services Authority (FSA) are considering introducing restrictions on the initial size of mortgages, according to Lord Turner’s review of banking regulations.

The report suggests reasons for limiting the amount of money that can be borrowed in order to purchase a home in order to protect consumers from borrowing too much and also protect banks from the potential threat of excessive lending.

However, Lord Turner has been the first to admit to potential disadvantages to the idea of restrictions, and therefore the FSA will discuss the issue in the autumn.

The review says: “The rapid extension of mortgage credit was a key factor in the origins of the financial crisis in the US, the UK and several other countries.

“In the UK high initial LTV (loan-to-value) and LTI (loan-to-income) ratios played an important role.”

Market Discipline Not Working?

The Council of Mortgage Lenders (CML) is welcoming the discussion, saying: “We see the FSA’s September paper on the future of mortgage regulation as a real opportunity to help shape a future regulatory landscape that will serve both lenders and consumers better.”

If the decision to legally limit mortgage size does go ahead, it would mean that it has to fundamentally change its previous policy.

The regulations have previously focused on the health of the financial service and making sure customers are treated properly and letting both sides make their own choices.

But the “market discipline” would help both individual customers and banks from taking excessive risks with money has been disproved in the last 18 months.

The review states that: “Both some customers and some providers relied imprudently on the assumption that ever rising house prices would reduce the risks otherwise inherent in high LTVs.”

Serious Disadvantages

September will see the publication of the FSA’s paper, which will look at various ways in which mortgages can be regulated. This will include things like formal limits on either the LTV or LTI ratios.

The report will also protect lenders and borrowers, and limits on the mortgage market could stop rising house prices exaggerating wider economic rises and falls.

Some countries, for example: Hong Kong; Netherlands, Greece, Poland; and Austria, already have formalised restrictions on the size of home loans.

However, the potential disadvantages of the idea are serious. For example, some people could be kept out of the property market as they can’t find enough money to put together a deposit, therefore not allowing them to buy a home.

Other borrowers may get around the restrictions by borrowing the extra money needed elsewhere, such as on credit cards, which will prove an even greater expense in the long run.

The Royal Institution of Chartered Surveyors (Rics) is worried about this: “Restrictions on mortgage lending run the risk of stifling activity in the housing market and could cause more problems than they solve.”

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If the government wants to avoid an economic crisis as bad as the one in the 1930’s downfall the upcoming G20 summit will be crucial.

Douglas Alexander, cabinet minister, has warned that the meeting that is due to take place next month is an “important moment”.

Finance ministers met on Saturday, and promised to make a serious effort to beat the current recession.

However, the best way to proceed is a matter for debate.

Finance ministers want to continue with the economic stimulus packages and low interest rates as well as increasing IMF funding.

They are also playing down the idea that a rift stands between the US, EU and UK on methods that can be used to help sort the financial problem.

Response Will Vary Between Countries

Mr Alexander said: “We had an agreement from everybody around the table to do all that is necessary for as long as is necessary and that sends an important signal to markets.

“There was a recognition with 20 countries around the room that the fiscal response is going to vary from country to country,” he added.

The basic outline of the agreement will help provide the basis for more concrete pledges that will be brought up at next month’s G20 meeting, which will take place in London.

Mr Douglas also said that: “A meeting in London 1931, the world came together and failed to reach agreement on the way to deal with the recession at that time and we all know the consequences.

“We do have a heavy responsibility to stop protectionism taking hold.”

When the idea that sides were being formed due to a division between the US and some European countries, was mentioned however, Mr Alexander denied all claims. He said: “I don’t know where this notion has emerged that somehow there are sides developing with respect to the G20, there are no sides.”

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Is the government going about fixing the economic crisis in the right way? Will G20 help as much as they are suggesting? Leave your opinions here.

Hundreds Affected

Trading Standards are looking into a mobile phone insurance scam that may have affected hundreds of people across the UK.

The scam targets those with new phones, and makes people believe they are receiving a call from the shop or mobile phone network. 

Usually, customers are led to believe they are being offered cheaper insurance for their phone. However, after payment details are given, the consumer is lucky to receive poor quality insurance, and most receive no insurance at all.

Trading Standards say that the scam has been a problem for the last 18 months, and is looking into 10 companies in the Swansea area. It is also warning people not to give their details to cold callers.

Those involved are believed to be buying phones and calling numbers quite similar to their own until they find someone with a new mobile phone.

Speaking Out

One victim has spoken out. Rebekah Swift bought an iPhone for her sons 17th birthday. She explained her story: “I took him to Carphone Warehouse and bought him an iPhone and paid for some insurance.

“We came home and a few hours later his new phone rang and it was from some people who led him to believe they were from Carphone Warehouse.

“He came into the kitchen and he said they were offering a cheaper insurance deal and we thought that was great. I let him give my debit card details over the phone and thought nothing more of it.

“Then he received a text some while later from Carphone Warehouse warning him of an insurance scam going on and by that stage the money had already gone out of my account, and we’d both been scammed.”

What Do You Think?

Have you been targeted by these pranksters or pranks of a similar nature?  Do you have any advice for people in order to help them avoid being the victim, or ideas what they can do if they think they have been targeted? Leave your comments here.

In an attempt to control business costs during the recession period, 10% of firms in the UK plan to freeze the pay of their employees.

According to the Incomes Data Service (IDS), firms are also putting off decisions about wages, which it says: ‘may be covering a much darker picture’ when it comes to the final extent of the pay freezes. But it also says that the average rate will increase, just more slowly.

There will be some sectors of business however, that see no change in the inflation of pay. Utility firms and the defence industry are two such examples.

Another thing that is becoming increasingly common within the workplace, is employers reducing the amount of hours their staff work in order to cut costs and still being able to keep many skilled and experienced employees within their firm.

Some employers have even waived bonuses and pay hikes, and told employees that there is no prospect of a pay rise this year.

‘Fairness Agenda’

Editor of the IDS Pay Report, Ken Mulkearn said: “We are also seeing pay pauses, where it comes to the time for an annual pay review and firms are saying they will put off a decision on what to do about pay.

“This means it does not get recorded as a pay freeze even if, in all likelihood that will be the outcome eventually in many cases.”

Though according to Mr Mulkearn, some businesses have decided to operate a ‘fairness agenda’ whereby staff at the higher end of the payment scale’s wages will be frozen, but lower salaries will be increased.

The car manufacturing business has been particularly badly hit in the recession. Some employees are being cut to just a couple of shifts each week and have had overtime banned, which has a serious impact on the amount of money each employee brings home.

‘What Else Can Businesses Do’?

Head of Economics at the TUC, Adam Lent has said that pay freezes are becoming “increasingly widespread… It’s a very tough recession. People are having their pay frozen or even cut and it can affect their finances extremely badly.

“Unions will always opt for a pay freeze and short-time working over redundancies. People understand that it’s better for a large number of people to take that pain, which is quite tough, than to have a small number of people take redundancy which is totally devastating.”

John Cridland of CBI business group said around half of its members would not be looking at pay rises this year. He said: “What else can businesses do? They only have a certain amount of money coming in and a certain amount going out and these have to balance otherwise the business closes down.

“The objective of a business is not to lay people off. If they have to reduce overtime, if they have to cut out bonuses or change shift patterns they will do so.”

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