The High Street banks have lost no time in passing on the agony of higher interest rates to their customers.
Several made fixed-rate mortgage deals more costly even before Andrew Bailey delivered his quarter of a percentage point rise to 1.25 per cent.
For the 2m or so households on trackers, which move with the market, pain will be felt immediately.
Savers spurned: Banks use rising borrowing costs as a chance to improve their interest rate margins. It is their own version of greedflation
The commercial banks have developed their own version of the rocket and feather pricing approach favoured by energy suppliers.
Increases in interest charges for home and other loans are passed through rapidly. Savers, who greatly outnumber borrowers, have to wait for a benefit, if any.
Mostly, the banks use rising borrowing costs as a chance to improve their interest rate margins. It is their own version of ‘greedflation’.
The main exceptions are financial groups seeking to build a UK presence such as JP Morgan’s online Chase bank.
Building societies like to demonstrate the mutual advantage, with the Yorkshire matching the Old Lady of Threadneedle Street with a 1.5 per cent savings rate.
Thanks to some cool analysis by the radical think-tank New Economics Foundation (NEF), we now know that with each rise in interest rates the commercial banks get a free lunch from the Bank of England.
Since the financial crisis in 2009, the banks have been receiving interest payments on the reserves held with the Bank of England.
NEF economists estimate that based on the current path of interest rates, some £57.03bn of interest payments on deposits will be transferred from the Bank to the High Street lenders by 2024.
The NEF thinks this money might be better spent on welfare payments (in a time of painful inflation) or refitting homes for a greener future.
An alternative approach might be for the authorities to intervene and suggest that this interest rate windfall be used to improve returns to savers, who have suffered serial abuse since the financial crisis as a result of the Bank’s £895billion quantitative easing programme and the record low bank rate. It would be a great opportunity for banks to remunerate savers for patience in hard times.
Out of sight
IAG chief executive Luis Gallego must be thanking his lucky stars.
His potential pay package of £4.7million, if all targets were to be hit, has been approved by shareholders in spite of 25 per cent of investors dissenting. He just avoided being placed on the UK’s Public Register of remuneration offenders.
By holding the annual general meeting in Madrid, Gallego and the IAG board managed to escape intense stakeholder scrutiny of its management of British Airways.
Efforts by a Mail reporter to gain access to the meeting were rebuffed with calls unanswered or cut off.
In the event, it wasn’t that disappointing since amid all the disruption at airports and in the skies – and a threatened summer pilot strike against BA by pilots union Balpa – there were just two AGM questions.
On the substantive issue of technical and staffing matters, which have made travelling from Heathrow a misery, Gallego lamely suggested that it was because furlough in Britain was somehow inferior to that in Spain, saying ‘we had to lay off staff’. Capacity was cut by 10 per cent.
Shareholders receive few opportunities to directly engage with executives so an AGM in Madrid is far from ideal.
Moreover, as anyone trying to communicate with BA will know, phone calls go unanswered, responses to emails are curt and unhelpful and Covid-19 is blamed for all manner of ills. The late Lord King, architect of the world’s favourite airline, would be appalled.
Amersham-based safety and health group Halma is a FTSE 100 achiever easily overlooked. Under the 17-year leadership of chief executive Andrew Williams, who is stepping down, the group’s market value has climbed from £500million to £7billion.
Its model of a loose confederation of companies across the globe seems to work, and possibly inoculates it against the private equity predators that stalk the lower reaches of the FTSE.
They could also be put off by the fact that Halma spends 5.6 per cent of revenue on R&D. Investment is never popular among financially driven enterprises.
Profits at £300million continue to rise and investors have been rewarded with a 43rd year of dividend increases of 5 per cent.
New boss Marc Ronchetti, now in charge of finance, will face a challenge in maintaining this record in turbulent times.
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