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First UK bond yield turns negative, first-time buyers and free electricity

1 July 2016

9:27 AM

1 July 2016

9:27 AM

UK shares have risen for the third successive day after Mark Carney said the Bank of England could cut interest rates following the Brexit vote.

In a speech yesterday afternoon, the Bank of England governor hinted at fresh stimulus measures following the referendum. According to the BBC, the FTSE 100 index opened 0.63 per cent higher this morning, while the FTSE 250 is higher by 0.42 per cent. The pound is currently trading flat against both the euro and the US dollar.

A surge in investors seeking out safer investments means that, for the first time, the return from a UK government bond has turned negative – the gilt that matures in March 2018 is offering a ‘return’ of minus 0.04 per cent. That means anyone who buys the bond is effectively paying the UK government for the privilege of lending it money.

Laith Khalaf at Hargreaves Lansdown said: ‘The UK is now officially through the looking glass, as the Brexit vote has pushed gilt yields below zero for the first time.’

Meanwhile, manufacturer Siemens has joined Vodafone and Easyjet in warning that the UK’s withdrawal from the EU could hit its investment in Britain.

Housing

First-time buyers are paying a record amount to purchase their first home despite the wider market wobbling around the EU referendum, according to estate agents Your Move & Reeds Rains.


May saw first-time buyers pay an average of £173,282 to get onto the housing ladder, up 2.7 per cent from £168,656 in April and 15.8 per cent more than the average of £149,645 seen in May 2015. First-time buyer house prices have now shot up more than £23,000 in the past 12 months and current average prices paid are the highest on record.

Across the market as a whole, house prices dipped in May in anticipation of the EU referendum on June 23, with the latest Your Move House Price Index showing house prices in England and Wales slumped 0.4 per cent month-on-month in May. But the bottom of the market has defied this trend fuelled by unwavering first-time buyer demand.

Pensions

Figures from the National Audit Office reveal that public sector pension liabilities have risen by a third since 2009/10 to almost £1.5 trillion. AJ Bell senior analyst Tom Selby said: ‘Millions of public sector workers continue to enjoy generous defined benefit pensions which are all but extinct in the private sector. The NAO figures show that liabilities have continued to surge despite the previous government introducing a series of reforms designed to cut costs.

‘Public sector pensions are paid for through general taxation, so rises in the costs of these pensions – primarily caused by increases in life expectancy – place further pressure on the already strained public purse. To put it in context, the NAO suggests total liabilities equate to £55,000 per UK household, while annual payments cost the Exchequer £1,000 per household, or 1.6 per cent of GDP.’

In other pensions news, Aegon argues that, following the Brexit vote, there’s a risk that the UK government’s attention will be entirely focused on negotiating the UK’s exit from the EU and not on domestic pension policy. The company says that pressure needs to be kept on government to make sure the review of auto-enrolment, scheduled in 2017, actually happens.

Kate Smith, head of pensions at Aegon, said: ‘The Government review of auto-enrolment is scheduled to take place in 2017, five years after the experiment to get millions more saving for retirement started in 2012. This is despite its roll-out not due to finish until 2019, when all employers will be auto-enrolling their employees into a workplace pension scheme and the minimum statutory contribution will have risen to 8 per cent of a band of earnings.

‘Negotiations around the EU exit will extend well into 2018, taking up much of the Government’s time and energy, but we can’t allow this to stall long term domestic pension policy. The 2017 review must go ahead as planned and look at ways to stop women falling through the cracks of auto-enrolment. It should be a priority to address the issue of women with multiple part-time jobs and to drive up member engagement.’

Energy

British Gas is to offer free electricity for eight hours at weekends to two million customers who have smart meters installed. Customers will be able to chose whether to take advantage of the deal between 9am and 5pm on a Saturday or a Sunday. British Gas said consumers should see savings of about £60 a year.

But experts said it will not necessarily be the cheapest deal on the market, and advised people to shop around with other suppliers. Most of British Gas’s 11 million customers will not be eligible, as only 2.4 million of these have smart meters.

Scams

Thisismoney reports that victims of investment scams lose an average of £20,000 to fraudsters, with scammers conning people into investing in fake diamonds, bogus stocks and shares and supposedly ‘fine’ wines.

Duped by cold-callers, fake websites and online adverts, investment scam victims typically lose considerably more cash than other fraud victims, Citizens Advice said. Taking every type of scam into account, including vishing, where fraudsters often cold-call people in a bid to get their bank details, victim losses average £2,500.


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