Credit crunch 10 years on: Seven ways that 2017 differs from 2007

7 August 2017

The past decade since the financial crisis has seen the landscape for savers and investors change monumentally.

Since the global financial crisis, markets, economies, currencies and the rules for investors have changed significantly. Gone are the days of the two-dollar pound, sizable interest rates but pitiful tax-free individual savings account (Isa) allowances. In 2017 savers and investors can look forward to generous tax-free Isa allowances but ultra-low interest rates, flimsy sterling, crumbling wages, and higher prices.

Here are seven things that have changed completely in the financial landscape:

1. UK interest rates

At the outset of the crisis, before slashing rates to an historic 0.5%, the Bank of England had base rate set at 5.5%. Since the rate sank to 0.5% in March 2009, the only movement has been to cut it further to 0.25% after last year’s EU referendum. These rock-bottom rates have been a boon for mortgage borrowers and those with other debts, but painful for savers and investors.

Bank of England base rate over 10 years

Bank of England base rate over 10 years

Source: Bank of England, August 2017

2. Cash vs stock markets

Rates in the doldrums have led to nearly a decade of measly returns for savers. Average cash savings returns on £10,000 over ten years would have left you with a gain of £460. However, investments in the FTSE All Share index would have garnered an average return of £6,846.61 on top of the original £10,000 invested. And that is despite the cataclysmic financial events of the crash. In 2007, finding a cash Isa offering a rate over 6% was not uncommon. Today, best buy rates for 2-year cash Isas are nearer 1%.

Cash savings vs FTSE All Share investment over 10 years

Cash savings vs FTSE All Share investment over 10 years

Source: Fidelity International, July 2017. Total Return of FTSE All Share: 30 June 2007 – 30 June 2017. Cash returns are based on Morningstar UK Savings 2500: 30 June 2007 – 30 June 2017

3. Isa allowance

In the tax year 2008/2009 the tax-free allowance was a miserly £7,200. Today, the allowance is £20,000. That’s makes an Isa one of the most attractive ways to invest your money, after a pension, in tax-efficiency terms.

Tax year               Isa allowance

2008/2009           £7,200

2009/2010           £7,200

2010/2011           £10,200

2011/2012           £10,680

2012/2013           £11,280

2013/2014           £11,520

2014/2015           £15,000***

2015/2016           £15,240

2016/2017           £15,240

2017/2018           £20,000

***ISA allowance was initially £11,880 but was increased to £15,000 on 1 July 2014.

Source: HMRC, July 2017

4. Performance of global stock markets

Despite the global downturn, the major world stock markets recovered their original positions quickly and have seen good growth in the past five years. The US S&P 500 index has been by far the best performing, due in part to the major advancements of the tech sector in the past decade.

Tom Stevenson, investment director for personal investing at Fidelity says: “While it has paid to stick with the US throughout the post-crisis upswing, it is now one of the most expensive markets in the world and there are other regions which offer better value for investors, namely Asia Pacific, Europe and Japan. Emerging markets have endured a widening performance gap with the developed world and look well-placed to bounce back, with growth, demographics and valuations on their side.” 

Performance of major world stock markets (US, Germany, Japan & UK) over 10 years

Performance of major world stock markets (US, Germany, Japan & UK) over 10 years

Source: Fidelity International, July 2017. All indices rebased to 1,000: 30/06/2007 - 30/06/2017

5. Value of the pound

Those of us who took holidays to the US before the crash will remember the heady days of the two-dollar pound. Things are pretty different these days, with the pound languishing around $1.30. And while much is made of sterling’s collapse in value since the EU referendum of June 2016, it has been on a downward trajectory since July 2014. This makes the cost of investing in US equities more expensive, but also makes dividend payments in dollars from FTSE 100 listed companies more attractive.

Value of pound vs dollar over 10 years.

Value of pound vs dollar over 10 years

Source: Fidelity International, July 2017: GBP to USD exchange rate 30 June 2007 – 30 June 2017

6. Inflation

On the eve of the crisis, UK inflation was 1.9%. Once the crisis was in full swing, this shot up over 5% before sinking into almost deflationary territory in 2015. Today, inflation is estimated to be around 2.6%, and set to rise before the end of the year. The Bank of England has been engaged in a game of “will they-won’t they raise rates” as a result. The results of the last Monetary Policy committee, which voted 6-2 against a rate rise, suggest that is still unlikely.

UK Consumer Prices Index inflation over 10 years

Source: ONS, July 2017: Consumer Price Index (% Change)

7. Wage growth

In 2007, wage growth reached over 5% in the month before the crisis began. With a relative inflation rate of 1.9%, people’s wages were growing handsomely. Ten years later, and the situation is rather different. Wage growth for June 2017 was estimated at 1.8%. Coupled with the aforementioned 2.6% inflation means people’s wages are devaluing.

Average year-on-year UK earnings growth

Average year-on-year UK earnings growth

Source: ONS, July 2017: Average Weekly Earnings - total pay, Whole Economy, 3-month Average


In reply to by anonymous_stub (not verified)

Everyone talks about poor kids can't afford to buy a house. What rubbish - they have the lowest mortgage rates in history !! We had sky high mortgage interest rates - now we have pathetic interest rates on our savings BUT DOES THE GOVERNMENT CARE !!!!!....

In reply to by anonymous_stub (not verified)

Thank you for bringing this to our attention, it has now been corrected.

In reply to by anonymous_stub (not verified)

You've got the wrong (Wage Growth) graph under 6.Inflation.

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