It’s a word I haven’t come across much since ‘A’ Level economics many moons ago. But money journalists have been blowing the dust off their financial disctionaries and digging out a word which was last doing the rounds in the 1970s … the dog days of the UK economy, before Margaret Thatcher (for good or ill depending on your political persuasion) came and put a rocket up things. So what does stagflation mean?

Stagflation … an ugly word for an ugly combination of events. It’s a conflation of stagnation and inflation and it’s defined thus: a period of slow economic growth and relatively high unemployment (stagnation), accompanied by a rise in prices (inflation). In short, stagflation happens when the economy isn’t growing but prices are – our last nasty bout accompanied the surge in oil prices in the 1970s. Usually, price inflation is an impetus to growth – producers can charge more for their goods so they will borrow money (expensive though interest rates may be) to invest in production. That means more goods, more jobs, higher wages (because labour is in demand) and so on … everyone in theory is happy.

The nix on it in 2008 is the credit crunch. A shortage of credit, with banks unwilling to lend to each other, and a general lack of confidence pervading the markets (be they investment markets, housing markets or whatever), and the personal credit problems of we the consumers. We’re worried our houses are falling in value, worried we’ll get into negative equity, worried we might lose our jobs and generally lacking the will to go out and splurge on luxury goods. The fact that it’s become tougher for us to get credit and loans, and more expensive when we do, leads us to spend even less in the shops of course. Net result, stagnation in demand and economic activity but not, unfortunately, inflation. Prices continue to rise – this week the Bank of England unveiled inflation figures that shocked the City, hitting 3% and with Governor Mervyn King warning that it was likely to hit 3.6% by late in the year – and this as growth slowed to just 1%, half that of a year ago. And while we may shed few tears that estate agents and City brokers are being laid off wholesale, the poison is beginning to trickle into the wider economy. Britain is largely an economy based on services, leisure, tourism and the like these days – if we’re not shopping then UK Ltd will soon start shedding jobs as price inflation creeps inexorably toward 4% … sounds like stagflation to us. You can read more about the Bank of England interest rate cuts here.

Tags: Stagflation

One of the best current credit card deals comes from Ulsterbank personal finance services. The Northern Irish bank, which these days is under the umbrella of the rather beleaguered Royal Bank of Scotland group, is offering 0% on balance transfers and purchases for the first six months on its Visa and MasterCard products. Thereafter, interest reverts to the usurious norm of the banks – 19.9% APR being its standard variable rate. Nothing unusual about that, but as ever you must ensure that you switch to another product before your interest free period ends.

Ulsterbank personal finance also offers a Gold Card which, like most gold and platinum credit cards in our opinion, offers the customer little extra apart from the spurious kudos of having a gold coloured piece of plastic rather than a red, black or garishly patterned piece of plastic. The yearly interest rate is somewhat lower at 16.9%, but as you aren’t going to be daft enough to pay interest on your credit card anyway, that shouldn’t concern you. It DOES offer free travel insurance and free extended warranties on certain products, though you’d have to cost out the saving very carefully against some of the very good travel insurance deals already out there to check it was actually paying for itself.

Ensure you aren’t getting ripped off on your credit card. Read our piece on zero percent credit cards and low APR credit cards and make sure you’re getting the best possible deal.

The British love affair with credit and their plastic cards may be coming to an end and, like many relationships painfully terminated by one party, it isn’t going to be very nice for the other partner. We’ve become comfortably used to zero percent credit cards and low APR credit cards over the last few years – with credit card rates (at least some of them) being driven down over the last decade or so as customers militated against the punishingly high rates that were standard in the early and mid nineties. Those were the days when lenders could get away with only quoting the monthly rate, bamboozling us with ‘APR’ and headline interest rate … basically anything but telling us that we were paying 25% a month, compounded on our sliver of plastic.

Truth to be told, it’s not THAT much better now, but at least it’s been possible to seek out low APR credit cards, with a slew of information on the internet and very good sites such as moneysavingexpert.com shaking their readers and demanding they go and find the best deal. There were always, of course, less savvy or less credit worthy borrowers subsidising such deals. One of the great injustices of financial life (though when was fairness ever a player in the money business) is that the poorer you are, the more you pay for credit. So, if you’re the owner of a shiny corporate business credit card, then not only are you not paying for credit … but your employer has negotiated a great deal whereby they are paying very little. But we’re not here to debate whether it’s fair that the possessor of a Coutts Credit Card is paying less interest per month than the eye wateringly 39.9% on the Vanquis Credit Card (a card offering credit to those with poor credit histories … now there’s a good idea), the party is over for all of us. moneyexpert.com this week reported that the credit card companies have turned down some three and a quarter million applications for credit cards in the last six months. Another 161,000 of us have had our cards cancelled.

Now you can try and repair your credit history, but the real issue is that the lending parameters have tightened. Their just isn’t much credit about. And if you’ve become used to living beyond your means (bluntly, that’s everyone who doesn’t pay off their balance in full each month) then the ‘no’ letter from Royal Bank of Scotland credit cards, Egg credit cards or whoever, isn’t just about putting off purchases. It’s about cutting your spending now. Not easy. And if you were one of the many who thought you were being financially savvy by ‘stoozing’ and using zero interest credit cards to constantly switch your debt from one card to another – maybe six months on the Accucard credit card then flop the debt over to the Ulster Bank business credit card and so on – then this is rather like a game of musical chairs when you suddenly realise there’s nowhere to sit.

There isn’t really a way round it, and it may be time for us to discover the relative benefits of debit and credit cards … and start only spending what we have in our bank accounts. Read more about credit card balance transfers and how to construct a monthly budget.

Today, a High Court judge ruled that bank charges ‘can be unfair under UK law’. This has come about because over the last couple of years lots of us have been demanding that banks refunded our bank charges. You know the kind of thing, £30 for an unauthorised overdraft, another £30 for the letter TELLING you you have an unauthorised overdraft.

People were getting increasingly fed up with these brutal charges. Last year, customers started to reclaim millions of pounds of charges through the courts. Ad hoc basis, some courts ruling one way, some another. So OFT, 7 High St banks and a Building Soc sought clarification through High court. And while that case has continued, further refunds have been put on ice.

The way people were getting their money back was by claiming that the charges were unfair or ‘penal’. The banks argued in court that the charges weren’t penal (ie penalties) but were just fees.

Now the Judge, Mr Andrew Smith has actually agreed with the banks up to a point. He said that these charges are not, by definition unfair – so banks ARE allowed to levy charges. BUT THE INTERESTING BIT FOR BANK CUSTOMERS is that his ruling DOES shatter banks’ argument that the charges were exempt under a 1999 law, called the Unfair Terms in Consumer Contracts Regulations (UTCCR). tHE OFFICE OF FAIR TRADING (THE OFT) won ruling in High Court that BANK charges come under ‘unfair contract’ rules, designed to protect customers.

HOW MUCH ARE WE TALKING ABOUT?!
OD charges worth 3.5bn a year to banks. £500m already paid back, but on hold while the test case proceeded. STILL on hold as just preliminary ruling. HSBC has said the ruling could cost £303m, but I’ve read other analysts predicting £1.1bn.

What next?
The next hearing is 22 may 2008, and next stage is for the Courts to decide a fair amount for charges … if you’ve written to your bank and are awaiting an answer, it’s still on hold to then.

REMEMBER!!!
This is about reclaiming bank charges, NOT credit card or any other fees.

WHAT TO DO?
In short, you HAVE to claim on an individual basis … ie write a letter. Even though NOTHING will be actioned by the banks till 22 May, you still want to get a dated letter off to your bank if you think you do have a claim, because claims only go back six years in England and Wales and, I’m sorry to say, only five years in Scotland!

It’s not all good. Many customers whose accounts stay in credit would argue that that they’re being rewarded for prudence. If there is no charge for going overdrawn (customers might call it a penalty but the bankers would just call it a fee) then there’s no reward for running your account well. The banks would also argue that SOMEONE has to pay … though that’s a tough one to swallow if you’ve just been charged £30 for being £5 overdrawn for 3 days.

SO DOES IT SPELL THE END for free banking? There is an argument that the banks are so competitive for cash just now that they WON’T start levying charges for fear of scaring customers away. But if they have A black hole of UP TO £1BN they have to fill it from somewhere. My hunch is free banking is on the way out. Get your letter off to the banks now. I’ll have more on this story as it develops, and we’ll be posting some links on how to claim.

And if you are suffering with your finances just now, check out Financial tips of the week: adverse credit problems UK for advice on how to start repairing the damage.

As widely expected, the Bank of England cut base rates to 5% today but it was cold comfort to lots of us with mortgages, as lenders continued to withdraw fixed rate loans, raise the interest rate on the same or attach hefty arrangement fees to new mortgages. We’ve seen a succession of Bank of England interest rate cuts over the past few months. Once upon a time attention was immediately turned to the mortgage lenders to see which of them would pass on the savings to their customers, and which of them would simply pocket the difference. No more. I read today that the ‘connection between base rate and mortgage rates has softened considerably’, for which piece of mealy-mouthed euphemistic jargon mean ‘they’re charging us more for cheaper money’.

Perhaps one shouldn’t pick on a single institution when they’re all at it, but the Nationwide’s timing was particularly unfortunate.  The institution that now dubs itself Britain’s biggest building society (because all the bigger ones turned themselves into banks in order to play at making ‘real’ money during the 1990s) announced just hours before the Bank’s announcement that its fixed rates would rise 0.32%. Its 5.83% five-year fix at a £499 fee for those with a 25% deposit, has now become 6.15% with a £699 fee.

As ever, the cruel irony is that the less attractive the borrower (for which read ‘poorer’) the higher interest they will pay.  It’s not just about ‘sub prime’ borrowers who really shouldn’t have been told ‘yes you can afford to buy a house’ when they palpably couldn’t. Many thousands of buyers who stretched that just little bit further to get onto the UK property ladder, and who could just about afford their monthly mortgage payments, are now about to get their fingers prised from the rungs.