Living in interesting times

Should savings be left in the piggy bank?

A bit of domestic clearing up in the Fraser vaults over the weekend uncovered a flyer for a Bank of Scotland savings account. It dated back to 2008, and in very large type, it offered interest at 6.5%.

It read like something from another world - one in which savers got rewarded with rates ahead of inflation, and in which banks could deliver extraordinary returns, helped by their extraordinary lending and investment activity.

We know better now. The saving rates currently on offer tend not to be advertised in big type. Perhaps it's because banks are embarrassed that they've sunk below 2%, remaining well below inflation.

As the Chinese saying nearly has it, we are cursed by living in interesting times.

The other side of that coin is that borrowing rates are advertised in big type, because they're so low. And there's a warning from the Bank of England today that we shouldn't get too used to ultra-low interest rates.

To be clear, it's not the incoming governor, Mark Carney, saying that, but the six-monthly risk survey the central bank carries out, seeking the views of "market participants".

They believe systemic risk has fallen to its lowest level for five years (when the survey began). And the fastest rising source of risk, with 24% of respondents citing it - up by 16 percentage points - is that low interest rates could fuel another bubble in asset prices.

That would include housing, which is beginning to show signs of recovery - notably in London, where it's fuelled by international investors, and from which, we can assume, many of those market participants view the world.

Cyber attacks

It could also be equities and bonds. CFA UK, the qualifications body for Chartered Financial Analysts, has also just published the findings of a survey covering 750 members, and there's been a big rise in the number of them who see developed market valuations as over-valued - up from 26% in the second half of last year, to 43%.

The Bank of England survey carries one glaring inconsistency, in that it found 25% of respondents saying a significant risk is posed by a fall in property prices, a rise in risk perception of 11 percentage points. You'll recall that surveys don't have to come up with rational results, least of all about markets.

The other area of rising concern from those market participants is that of disruption from cyber attacks. Fear of such "operational risk" is up by 10 percentage points, being mentioned as a concern by 24%.

In a way, this is a sort of good news. People are worrying about less immediate or significant risks than the concerns from bank instability and from the Eurozone, which have dominated the markets' outlook for the past five years.

Given that one of Britain's second tier banks, the Co-op, has this morning confirmed the Co-op Group is taking drastic action to shore up the lender, it's striking how little that has rattled markets.

Pay rises

And in turn, that comes with growing signs that the economy may be picking up a bit. Today, we've got evidence from the Bank of Scotland monthly survey of recruitment consultants. Not only are there more vacancies, but a tightening supply of recruits means that starting pay is up, and at the fastest rate for five years.

That's got to be good for confidence. One of the biggest dampeners on domestic demand has been the unprecedented fall in workers' spending power over recent years. If pay begins to catch up with inflation, then confidence to go out and spend ought to come back.

We also learned today that footfall at Scottish shops has picked up, probably helped by better weather last month.

But we're all cannier than in the old days of reliable annual growth in real earnings and 6.5% returns on savings. Retailers say we're out and looking, but we're looking for bargains.