For most of us, it was a typical Thursday nestled in the middle of a typical summer.
Here in the UK, we were drying out after a July deluge that had left thousands of homes flooded.
In the US, a rescue operation to free trapped miners in Utah and the race to the next election dominated the headlines.
Sweden was engrossed in a Stasi spy scandal and Spanish authorities were considering drastic action against a plague of field voles.
Few would have predicted that 9 August, 2007 was the day that would change the world.
That was the day French bank BNP Paribas suspended three funds specialising in the US sub-prime market, explaining that it was struggling to calculate their values against a backdrop of growing concerns over liquidity. The decision is now widely considered the start of the worst global financial crisis in living memory.
Like the first glimpses of the iceberg from the crow’s nest, the rest is inescapable history. Within a few weeks, consumers in the UK were queuing to extract their money from Northern Rock as an abstract issue became a real concern for savers and investors.
A year later our screens were filled with miserable looking Lehman Brothers staff carting cardboard boxes from their now ex-employer as the investment bank went to the wall, taking with it the notion that banks were too big to fail.
Freefall ensued. Business and consumer confidence collapsed. National governments and international central banks started desperately injecting cash into financial institutions and domestic economies in general in a bid to halt a domino effect that was beginning to bring the solvency of entire nations into question.
Conversation over a single, carefully nursed pint in the local shifted from friends of friends who had been made redundant into first person reporting as wage growth plummeted, the housing market stumbled and the Bank of England’s base interest rate dropped to an all-time low.
With daylight between us and the darkest days, this all feels like ancient history. The hedge fund managers who cashed in their chips and ran for the hills with canned goods, bottled water and an impressive arsenal of weaponry are the now the objects of mirthful legend.
By 2014 and 2015, the highly regarded economic think tank the OECD was issuing predictions of a strong UK recovery.
In 2016, our favourite economic indicator, the housing market, was so strong that reports were emerging of people making more money from the increasing value of their homes than from their day job.
This month, the employment rate has ticked happily past 32 million people, the highest rate since comparable records began in the Seventies, and figures out this week show wage growth is up 2 per cent in the last three months alone.
But make no mistake, the events of 2007 and 2008 have “irrevocably changed economies, markets and the world we live in”.
You only need to look at the rhetoric around the last three general elections, with all parties investing huge amounts of time and energy into proving their financial credentials and ability to deliver a stable economy, to see that the precarious nature of our economy now deeply colours our collective consciousness.
On a personal level, the legacy of the seismic events of 2007, 2008 and beyond continue to be felt.
“It’s almost a decade since the Bank of England first took the knife to the bank rate. Today, people are still worried and speculate that a rate rise could be lurking around the corner,” notes Maike Currie, investment director for personal investing at Fidelity International. “But the only move in rates since the March 2009 cut – the lowest since the central bank was founded in 1694 – has been in the opposite direction.
“Back in August 2016, with Britain still reeling from the shock EU referendum result, the Old Lady of Threadneedle Street’s policymakers cut the base rate by another quarter per cent back to a new all-time low of 0.25 per cent.
“Record low interest rates have been good news for borrowers – those with mortgages and credit card debit have enjoyed a prolonged period of very low rates,” she adds.
“In fact, there is an entire generation of homeowners who have never experienced an interest rate rise since buying their first homes. But for those who have been prudent with their money – savers and investors, the environment of perennially low interest rates has hurt.”
Fidelity’s figures suggest £10,000 of cash set aside in the average savings account in 2007 would now be worth only £10,460. But despite the market crash of late 2008, the eurozone crisis and numerous dramatic political events, if you had put that £10,000 into the FTSE All Share index over the same period you would now be sitting on £16,847.
In fact, though there have been years when every asset class has risen, and years when some rose and some fell, no year in the last decade has seen everything fall together. Despite many investors still doggedly attempting to time their way to decent returns in turbulent times, its clear we could do much worse than put together a well-diversified portfolio and leave it be.
But stock market volatility and painful interest rates aren’t the only things that have rocked our wallets in the last 10 years.
Inflation bounced from 5 per cent in the heat of the credit crunch before dropping through the floor and more recently creeping back up thanks in large part to the weaker pound. Over the 10 years since August 2007, it has risen 26 per cent.
“Inflation never seems like a problem until suddenly it is,” says Currie. “What makes today’s rising prices concerning is that it’s outpacing our pay packets, which means negative real returns. So as each month rolls by we’re getting progressively poorer.”
In fact, half of us now feel worse off than we did in 2007, according to new research from GoCompare, which has found that more than one in ten UK adults have been forced to alter major life plans as austerity measures continue to bite.
The next crisis
For those who can’t, increased living costs and the struggle to make ends meet mean debt levels are reaching epic proportions, despite a keen awareness of the risks involved.
A quarter of the population is now worried that they will be hit hard financially by another economic downturn. And they’re right to be concerned.
With unsecured debt levels totalling more than £200bn for the first time since 2008, and Britons owing more than £68bn on credit cards alone, the UK’s debt is now growing at the same rate as it did in the mid 2000s.
Add in mortgages and net lending to individuals in the UK is increasing by £173m every day according to data from the Money Charity out this week.
“The one big thing that separates us from 2008 is the 0.25 per cent interest rate set by the Bank of England, and the resulting low payments people make on their borrowing,” the charity warned in a statement.
“A decade ago, Britons paid back £86bn.Today that is just over £50bn.
“If rates had not changed at all since then, we would be paying 81 per cent more than we pay today – that’s £94bn, £1,810 for every adult in the UK or 7 per cent of average earnings.
“Another crunch would have significant negative impact on the economy and people’s lives, so the Government, the financial industry and all of us individually need to be making concrete steps toward slowing the growth in debt.”
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