Good news at last – household debt is falling fast
Thre's not much good news around at the moment., But the fact that UK households are paying off debt at a record rate must surely count, says Merryn Somerset Webb.
You have to dig around a bit for good news at the moment – it isn’t in fashion. But here is some: in April, UK households paid off £5bn-worth of credit card debt and £2.4bn of personal loans (this week's magazine has some help on how to do this yourself). That’s the most on record. At the same time UK savings rates are on the rise: according to money management app Yolt, their users put 70% more into savings accounts in April than in February. They also put 63% more into various investments. Thanks to generous furlough schemes, the ability to take mortgage holidays (and so to focus on chipping away at higher-interest debt) and, of course, the full cancellation of many of our usual routes to overspending, we are saving more than we have in a long time – £16.2bn in April compared to around £5bn in a normal month.
You will say this is temporary. You could be right. As soon as lockdown ends and the real tally of lost jobs begins to show, a large number of people will lose their ability to save very quickly. And many of those who have been forced into retrenching over the last few months but who also hang on to their incomes post-lockdown will return to their old habits sharpish (note the three-hour queue outside Ikea at the weekend).
But the key point is that many households have used the crisis period to build resilience into their household balance sheets. This should feel pretty good (listen to my latest podcast with ex-Bank of England governor Lord King on how this worked for the UK as a whole on the way into the Covid crisis). It may become a new habit. It may not be possible for it to become a new habit. But it does mean that as we come out of the crisis, people will be in a much better position than they might have been – something that suggests that the V-shaped recovery the stockmarket is expecting remains a genuine possibility (we talk about the extraordinary recovery of equities since March in this week's magazine, and Cris Sholto Heaton gives his thoughts on why valuations still matter).
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Commodities look cheap
With that in mind you might start to turn your eye to the commodity sector, an area we haven’t (bar precious metals) been much interested in for a while. The S&P Dow Jones Commodity Index is down around 5% a year over the last decade and commodity stocks as a whole are currently trading at an 80% discount to the S&P 500 (see, for example, how the oil market is moving). Contrarians will sense an opportunity there.
Resilience should not just be the thing to look for in your household balance sheet. It is also the new buzz word in investing. Long-term investors will increasingly want to be sure that the companies they hold are focused more on being able to weather crises than they are on ramping short-term stock price performance via borrowing and buybacks. How do you make sure you do this too? See our cover story on page 20 for thoughts on the process and the best picks. If you run a small business, State aid is winding down – make sure you are as ready as you can be.
Finally, a word on one of your favourite subjects, house prices. Post-lockdown the great fear of property owners (and great hope of would-be buyers) is that post-lockdown prices will fall fast. Will they? Max King thinks not.
Sign up to Money Morning
Our team, led by award winning editors, is dedicated to delivering you the top news, analysis, and guides to help you manage your money, grow your investments and build wealth.
Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).
After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times
Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast - but still writes for Moneyweek monthly.
Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.
-
Christmas at Chatsworth: review of The Cavendish Hotel at Baslow
MoneyWeek Travel Matthew Partridge gets into the festive spirit at The Cavendish Hotel at Baslow and the Christmas market at Chatsworth
By Dr Matthew Partridge Published
-
Tycoon Truong My Lan on death row over world’s biggest bank fraud
Property tycoon Truong My Lan has been found guilty of a corruption scandal that dwarfs Malaysia’s 1MDB fraud and Sam Bankman-Fried’s crypto scam
By Jane Lewis Published
-
UK wages grow at a record pace
The latest UK wages data will add pressure on the BoE to push interest rates even higher.
By Nicole García Mérida Published
-
Trapped in a time of zombie government
It’s not just companies that are eking out an existence, says Max King. The state is in the twilight zone too.
By Max King Published
-
America is in deep denial over debt
The downgrade in America’s credit rating was much criticised by the US government, says Alex Rankine. But was it a long time coming?
By Alex Rankine Published
-
UK economy avoids stagnation with surprise growth
Gross domestic product increased by 0.2% in the second quarter and by 0.5% in June
By Pedro Gonçalves Published
-
Bank of England raises interest rates to 5.25%
The Bank has hiked rates from 5% to 5.25%, marking the 14th increase in a row. We explain what it means for savers and homeowners - and whether more rate rises are on the horizon
By Ruth Emery Published
-
UK wage growth hits a record high
Stubborn inflation fuels wage growth, hitting a 20-year record high. But unemployment jumps
By Vaishali Varu Published
-
UK inflation remains at 8.7% ‒ what it means for your money
Inflation was unmoved at 8.7% in the 12 months to May. What does this ‘sticky’ rate of inflation mean for your money?
By John Fitzsimons Published
-
VICE bankruptcy: how did it happen?
Was the VICE bankruptcy inevitable? We look into how the once multibillion-dollar came crashing down.
By Jane Lewis Published