A lot has happened in the markets over the past month.
Over the next few weeks, I will be capturing key movements in the financial and economic markets alongside my opinion on economic activities.
The rise in Interest rates-
The current UK interest rate is at a high figure (4%) after being increased by 50 basis points (from 3.5 to 4 %) which is the highest level in the UK since the 2008 financial crisis, and the bank of England might be forced to raise rates again.
A rise in interest rates means that homeowners and debtors must pay more money for debt incurred. If one was to refinance their mortgage, they will pay at least £100 a month more to do so. If one bought a home in 2020, at a 3-year fixed rate, their mortgage repayments could increase by figures as high as £1000 per month.
The government increases interest rates to slow down inflation, because the higher the interest rates are, the lower the purchasing power of the average person which subsequently curbs the rapid increase in the prices of goods and services.
Inflation fell from more than 11% in October 2022 to 10.5% in December 2022 and the economists forecast a rapid decline in inflation this year. People just can’t buy as many things as before.
Due to Brexit – the UK imposed trade barriers on its closest trading partners which inhibited to flow of imports and exports and caused changes in tax rates.
Will the interest rate keep increasing? - In my opinion, we can’t tell, by there is an expectation of another 25-basis point (0.25%) increase in 2023.
Government workers are demanding higher salaries which will strengthen their buying power and could potentially further increase inflation rates potentially resulting in the need for another rise in interest rates, but this depends on a myriad of factors including the source of funding for the pay rises of government workers in the UK.
I believe Brexit was a bad move from the UK government and that everyone should brace themselves for worse times, it seems as though the government is adopting a ‘stop-tighten’ monetary policy; changing their plans as the days go by. I am not bullish or bearish on my outlook for 2023, and financially I am playing it safe- it is better safe than sorry.
Debugging financial Verbiage : Basis points
If you are a listener of the financial news, you’d probably hear economists talking about ‘basis points’
A basis point (also known as BPS/ bips) is one hundredth of a percentage point and it is a term used to describe the percentage changes in the value of financial instruments. Basis points most commonly express differences in interest rates. To put it simply, 100 basis points is 1 percent, so 25 basis points is 0.25 percent.
For example, if interest rates are 10% and increased by 1 basis point, the new interest rate is 10.01% The economics use a bunch of nomenclature make things sound complicated when they really are not
My Favourite Podcast of the week The Financial Times News Briefing- This podcast is one of my favourites because it breaks down key movements in the markets into 10-minute episodes. It is released every morning during the weekdays and invites key economic stakeholders to expand on hot topics- very useful listen for your commute – especially if you are someone who get overwhelmed by news websites, twitter etc.