While this university town might seem to be sailing comfortably along, it is only an hour from Detroit, home of the US auto industry. Even the shortest visits to the US tell you things about the economy that you would not get from the figures. Yet many savings rates haven't shifted at all since the last increase in base rates, while others haven't gone up by as much.By contrast, some variable mortgage rates have gone up by more. It is generally forgotten in all the gnashing of teeth about higher interest rates that there are millions of net savers out there for whom rising rates are a boon Or should be, in any case.
This is more particularly the case as the latest round of rate increases is occurring against a backdrop of rising unemployment and already squeezed disposable incomes.Some banks are also getting up to the old trick of using the uptick in interest rates to widen the spread between lending and borrowing costs. The point Mr Butler draws from this change in approach is that the resulting consumer and housing market slowdown might be a lot more pronounced this time around than it was last time. In other words, the banks didn't increase their overdraft, loan and mortgage rates by as much as the Bank base rate was rising.That's apparently not the case this time around; most if not all of the effect of the present tightening phase is being passed on. All the same, the overall effect is bound to be to drag up prices across the industry as a whole, perhaps not by as much, but certainly by well into double digits.Motor insurance premiums aren't a huge component of the Consumer Price Index The weighting is just 0.5 per cent. Set against gas and electricity bills, with a combined weighting of 3 per cent, the number looks almost insignificant. Yet for nearly all households, car insurance is another non-discretionary item of expenditure that is inflating away at an alarming rate.
That next interest rate hike may come sooner than the markets expect.Consumers lose as rate spreads widenAccording to John Butler, European economist at HSBC Investment Bank, only around half the 1.25 percentage point increase in interest rates pushed through by the Bank of England in 2003 and 2004 found its way from the banks to the rest of the private sector. Particularly high-risk customers, on the other hand, will pay a lot more. Nor will everyone follow suit; Norwich will almost certainly lose market share as a result of its pricing initiative. Or perhaps not, to judge by news that the insurer is trying to push through price increases averaging 16 per cent in motor premiums. As the number two in the market, responsible for a claimed one in seven cars insured in the UK, Norwich is hoping that its pricing lead will encourage others to follow suit.Few companies make decent money out of motor insurance, which has long suffered from chronic over-capacity. Norwich Union, part of the Aviva insurance group, reckons its pricing action will help reduce its claims ratio in motor from the present 105 per cent of premiums to well under 100 per cent.Not everyone will pay a 16 per cent increase Some will escape any increases altogether.