Client Weekly Update – 3 February

Market update

European markets are mixed today. The FTSE 100 is up 0.95% while the CAC 40 gains 0.51%. The DAX is off 0.50%.

The Nasdaq was the strongest of the major indexes as it vaulted 3.3% today. The Dow Jones Industrial Average lagged the other major indexes despite some components faring well. It closed off low but still fell 0.1%. The S&P 500 lifted 1.5% to reach its best level in five months.

Asian markets finished mixed as of the most recent closing prices. The Nikkei 225 gained 0.39%, while the Hang Seng led the Shanghai Composite lower. They fell 1.36% and 0.68% respectively.

Interest rates hiked by Bank of England by 0.5 percentage points in tenth consecutive rise

Rate rise may be the last for a while as the Bank upgraded its economic forecast, including their projections for a recession.

On Thursday the Bank of England raised UK interest rates by a further half percentage point to 4%, but gave its clearest signal yet that borrowing costs may now be nearing their peak.

This was the Bank’s tenth rise in succession but in the accompanying documentation, it hinted that there is a chance it might be the last for the time being, saying that it would only raise rates further “if there were to be evidence of more persistent [inflationary] pressures” than in its forecasts.

Those forecasts suggest that inflation has now peaked, and that it will come down gradually this year and next, eventually dropping beneath the Bank’s 2% target.

“I do see the signs that we’re turning a corner, and that obviously is encouraging but there’s a long way to go,” Andrew Bailey, governor of the Bank of England, told Sky News in an interview. “There’s still some very big risks out there. We’re going to take it each game as it comes and look at the evidence very closely,” he added.

In raising interest rates again, the Bank pointed to wages in the private sector rising faster than anticipated.

There are widespread strikes this week in the public sector as workers fight for higher wages. Mr Bailey said the Bank would be keeping a close eye on developments in this area, as they could contribute further to inflation.

“What happens going forwards on wage setting will be very important and we’ll be watching it very closely because that will be an important indicator of whether the very sharp downward path of inflation will happen,” he said. The Bank also upgraded its general forecast for the economy on Thursday.

What does the Bank of England interest rate rise mean for you and how will it affect mortgage payments?

Thursday’s move is yet more bad news for the approximately 2.2 million people on a variable rate mortgage, who are also grappling with higher fuel and energy bills. Many now face paying hundreds of pounds extra a year. About half of those 2.2 million are either on a base rate tracker or discounted-rate deal.

The other half are paying their lender’s standard variable rate (SVR).

A tracker directly follows the base rate, so the payments will almost certainly soon reflect the full rise. On a tracker now at 4.5%, the interest rate would rise to 5%, adding £41 a month to a £150,000 repayment mortgage with 20 years remaining.

The monthly payment on such a mortgage would rise from £949 to £990. Of course, for those with bigger mortgages, the numbers will be bigger. On a £500,000 mortgage the monthly payment will rise by £139 to £3,301. SVRs change at the lender’s discretion and most will go up, though not necessarily by the full 0.5 points.

Some lenders may take some time to announce their plans. The average SVR rate is 6.84%, according to Moneyfacts.

However, about 6.3m UK mortgages (three-quarters of the total) are fixed- rate loans. These borrowers are insulated until their deals expire – but for many that will be soon, with 52,000 due to expire in February and March.

What about new mortgages?

The past few months have been a stressful and costly time for anyone looking for a mortgage deal, whether it is to buy their first property or to replace a deal that is ending. Home loans were already getting dearer after a run off in 2022.

But about 1,700 deals were withdrawn amid the financial shock in September, which sent the average two- and five-year fixed mortgage rates up sharply, from 4.74% and 4.75% respectively, to peak at 6.65% and 6.51% in October.

Since then, lenders have started competing for custom again and rates have started to come down. The average new two-year fixed rate stood at 5.44% on Thursday, according to data provider Moneyfacts and 5.2% for a five-year fix.

David Hollingworth, an associate director at L&C mortgages says fixed rates have fallen back from the post mini-budget highs with the trend expected to continue. The improving picture meant that mortgage costs for the best deals are potentially thousands a year cheaper than just a few months ago.

“That said, rates remain higher than the lows of recent years and those coming toward the end of a fixed deal will need to plan ahead,” Hollingworth said.

He advises homeowners on their lender’s SVR to “urgently review their options” as they are often about 7% or more. “Even if they prefer to keep their options open, a penalty free tracker could offer a better holding position.”

Indeed borrowers who think the run of Bank rate rises will end soon, or even start to reverse, are increasingly seeking a “tracker” or variable rate loan when they buy a home or re mortgage potentially halting what had been a long-term shift toward fixed-rate deals. At the time of writing, the average two-year tracker deal is at 4.39%.

Jersey’s finance industry braces for task-force review after ‘scathing’ Monaco evaluation

Jersey hopes it can avoid the fate of Monaco when its financial services sector is reviewed this year, after the offshore centre received a ‘scathing’ assessment.

The government’s director of financial crime strategy George Pearmain called the Monaco evaluation ‘very scathing’ but stressed that the Island was in a different position, and better prepared to face international scrutiny. Financial Crime Strategy associate director Richard Pedley said the Island was ‘not doomed’ but also ‘not home free’, when members of Jersey’s finance industry met yesterday to hear about the latest preparations for the Island’s own Moneyval assessment.

This year is a key one for the Jersey’s primary sector, with a team from Moneyval – a European organisation which assesses compliance with international standards to counter money-laundering and the financing of terrorism – due to visit in September.

A bad report could have dire consequences for Jersey, with the Island particularly keen to avoid being added to a ‘grey list’ of jurisdictions which are judged to have inadequate laws, practices and resources to tackle financial crime. Last week, Moneyval published its assessment of Monaco.

The Mediterranean principality has not joined FAFT’s grey list, but the international watchdog is expected to discuss the report at its next meeting at the end of February.

Mr Pearmain said: ‘Monaco’s risk profile is not dissimilar to Jersey’s, but its approach and preparation [for evaluation] was very different; for instance, Monaco did not make any legislative changes until last April, whereas Jersey has already taken several important steps.’

Mr Pearmain added that Jersey’s position was more akin to another recently evaluated jurisdiction, Estonia, which had received a far more favourable report to Monaco and ‘invested substantially in its Financial Intelligence Unit’.

Despite Jersey being better prepared – with the Island already passing laws to introduce Deferred Prosecution Agreements and to make ‘Failing to Prevent’ financial crime an offence – the finance industry is not expected to get a clean bill of health.

Richard Pedley, associate director of Financial Crime Strategy, told the meeting:

“Anecdotally, there seems to be two schools of thought in the run-up to the evaluation: one is “it’s all going to be fine, so there’s no point doing anything; and the other is that ‘we’re all completely doomed’.”

“I don’t believe either is correct, and the truth is somewhere in the middle. We are not doomed but we are not home free, either. We are better prepared than others, and will be even more prepared by September’s on-site visit. One thing we can guarantee is that we will be well prepared, which we expect will serve to reduce the scope of Moneyval’s inevitable recommendations when they come out next year.”

Ferry operator warns it could stop sailing between Jersey and France

The Manche Iles Express could stop sailing between Jersey and France next year.

Jean Morin, who is president of the Manche département, told French media this week that unless post-Brexit border controls in Jersey were changed to make it easier for passengers without passports to travel, local authorities would stop funding the shipping company which runs the service.

“If the passport requirement is not lifted by then, we will have no choice but not to renew the service contract for 2024-2025,” Mr Morin told Ouest France.

About half of France’s citizens hold a passport, with many owning a carte d’identité or CNI only, which is a government-issued form of identity. The CNI can be used for travel within the EU, and used to be accepted when entering the UK Common Travel Area.

Holding a valid passport became a requirement from 1 October 2021. Mr Morin said he hoped for flexibility in the arrangement – at least to allow day-trippers holding just a CNI to visit the Channel Islands. External Relations Minister Philip Ozouf previously said he was working hard to find a solution.

Asked how soon the use of ID cards could be reinstated, he told the JEP in December that ‘significant progress’ had been made. :If this decision can be finalised and put over the line, it will have a very significant impact on next year’s tourist season,” he said at the time, adding:

“There is still some dotting of i’s and crossing of t’s to be done. This season’s Manche Iles Express sailings are due to begin on Saturday 22 April and conclude at the end of September.”

In a statement, Home Affairs Minister Helen Miles said:

“Securing a mechanism whereby French nationals can travel to Jersey using identity cards is a key priority of mine. Jersey Customs and Immigration officials have been considering the relevant operational, legal, policy, and economic issues – all of which must be considered when making changes to existing policy for the Common Travel Area. We will continue to co-operate closely with our colleagues in the UK as we work towards this objective.”

Landmark building in town gets the go-ahead

Plans for a ‘landmark’ new building in town have been unanimously approved. The Planning Committee voted by seven in favour of the scheme to redevelop Ingouville House, near the Arts Centre, with members praising its design and architecture.

It has been labelled a ‘landmark building in Jersey’ by PF+A Architecture – the architects behind the scheme – who argue the overall project would act as a ‘regeneration to the area, providing opportunities to hold performative and cultural events within the spaces’.

They added that the project would benefit the residents of Anne Court, which is currently under construction, and ‘reinvigorate’ this part of St Helier.

The redevelopment will create eight two-bedroom residential apartments and landscaped amenity space. The scheme will also see the provision of a restaurant with al-fresco seating. Designs were created by the Jersey Studio of PF+A Architecture.

New fishing regulations for EU boats to come into force in Jersey waters

New arrangements for fishing in Jersey waters by EU boats are set to take effect, with ministers hoping that the move will achieve stability in the relationship between the Island and France.

Permits which relate to ‘extent and nature’ – the type and amount of fishing activity that an EU fishing vessel undertakes in Jersey waters – will take effect from 1 February.

The permits will be attached to the 136 permanent licences which the Government of Jersey has issued to EU vessels when those licences are renewed.

Ministers hope the new arrangements will signal calmer water after a period in which tensions over the issue mounted, notably when St Helier harbour was blockaded by French trawlers in May 2021 and two Royal Navy warships were called in by the UK.

Environment Minister Jonathan Renouf, said:

“These permits are designed to ensure that our EU colleagues who have a track-record of fishing in Jersey waters can continue to do so, and will also contribute to the sustainable management of fishing activity in our waters. Throughout this process we have shown good faith and an understanding of the concerns of the fishing communities in both Normandy and Brittany – as we move past 1 February, we will continue to show any necessary flexibility in the practical implementation of these permits.”

Deputy Renouf added that the implementation and monitoring of permits for all vessels fishing in Jersey waters was ‘of critical importance to our marine environment and the preservation of our fish stocks’.

External Relations Minister Philip Ozouf, said he was encouraged by the latest development. He said:

“We are beginning to reach a point where the fishing communities in Jersey and France can begin to look to the future, where fishing is undertaken in an economically and environmentally stable manner. As a government we are committed to working closely with our French colleagues on maritime matters, which is of great economic and cultural importance to us both. The recent relaxation of port opening times in France is a perfect example of this cooperation and mutual understanding in practice, and there are other issues which we are in discussions with the French authorities on.”