Savings in Britain: Yield hunters

The Bank of England’s latest “Trends in lending” report paints a subdued picture of credit conditions in the UK. The overall stock of lending continues to fall, particularly for small and medium-sized businesses.

A section of the report on banks’ liabilities, meanwhile, gains extra significance in light of the stubbornly high inflation data released last week. Savers, desperate to keep up with inflation, much less earn real returns, are increasingly squirreling away their money in higher-yielding time deposits with longer maturities. (Guaranteed inflation-beating national savings certificates were recently withdrawn, which makes Buttonwood’s blood boil.)

The share of fixed-rate retail deposits of one year or more has doubled over the past two years. The Economist Intelligence Unit does not expect the Bank of England to raise its policy rate from the all-time low of 0.5% until late this year, prolonging savers’ desperate search for yield for some time to come.

Berkshire Hathaway: Short-term thinking

A Bloomberg story today asks whether Warren Buffett is worried about inflation. His company, Berkshire Hathaway, has reported a growing appetite for shorter-term securities recently, a potential sign that Buffett is anticipating income-eroding inflation and interest rate hikes in the future.

In absolute terms, over the past 12 months Berkshire added US$1.3bn to its holdings of fixed-income securities due in less than a year. At the end of June, these short-term securities accounted for 21% of the group’s bond portfolio, up from 16% the previous year.

Following soft growth figures and weak employment data, a majority of economists now believe that deflation presents a greater immediate threat to US economy than inflation. The “Oracle of Omaha”, as is often the case, appears to defy the conventional wisdom.