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Spectator Money

The financial crisis, ten years on

17 August 2017

5:07 PM

17 August 2017

5:07 PM

It has been ten years since the start of the global financial crisis, and much has been written about whether the crisis of 2007 has changed the financial system… whether lessons have been learned, and so on.

Frankly, lessons haven’t been learned and if the UK doesn’t play its cards right, there could be another financial crisis looming thanks to Brexit. A ‘brain drain’ has already started in the City of London’s financial district, UK house prices are slowing down as many high net worth individuals (HNIW) head back to Europe, and you can’t even buy a cheap bar of chocolate because of Brexit. Pass me the ‘chocolate orange’? Perhaps not.

Brexit aside, are investors in a ‘better place’ 10 years on? Or taking it one step further, as an investor could you actually have turned a profit from the global financial crisis? According to research from Fidelity International, yes – if you remained resilient and ignored the subsequent Eurozone sovereign debt crisis.

If you began investing in the FTSE All Share on 31 July 2007 and adopted a disciplined strategy of regularly putting in £5,000 each year on the same date until now, then you would have seen your original investment of £50,000 grow to £81,015* over the past decade – a reasonable ten-year return of 62%.

So investors in the FTSE All Share might have benefited from the global financial crisis, if they held their nerve. But it is a different outcome for UK savers. If you had sheltered all your savings in cash over the past ten years, saving £5,000 each year into the average UK savings account, your savings would have only grown by a paltry 1.2% to £50,619.** That’s a difference of £30,396.

The poor savings rates offered by UK High Street banks has crippled the UK saver over the past 10 years and the lack of banking choice for the consumer is obvious.Since the taxpayer-funded bailout of 2008, Royal Bank of Scotland has generated losses of £58bn, another UK High Street bank, Barclays is currently engulfed in the Libor scandal, and who can forget the Lloyds PPI scandal?

There might be light at the end of the tunnel with the rise of ‘challenger banks’ like Metro Bank or Zopa attempting to offer the consumer an alternative, but it is a slow process. 


Sadly, ten years after the Northern Rock banking collapse, wage growth has slowed and the value of the pound has tumbled – even further since the EU Referendum (see charts below) last year.

Wage growth

Source: ONS, July 2017: Average Weekly Earnings – total pay, Whole Economy, 3 month Average

UK Interest Rates

Source: Bank of England, August 2017

Lessons haven’t been learned and the financial system rumbles on. To quote Primal Scream’s hit song ‘Rocks’:

‘Dealers keep dealin’, Hustlers keep hustlin’, Souls are up for auction, Ain’t no use in prayin’, That’s the way it’s stayin’, [baby].’


 

* Source: Fidelity International, August 2017. £5,000 invested every year on 31 July from 2007 – 2017. Total investment: £50,000

** Source: Fidelity International, August 2017. Based on £5,000 being saved every year on 31 July from 2007 – 2017 into the Morningstar UK Savings 2500

 


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