Gold now moves at its highest price since almost seven years ago, while global equities slid among recent political tension involving Iran and the US. The price of Gold shot up as much as 2.3% this week to $1,580 a troy ounce, its highest level since April 2013.
This subsequently boosted shares for manufacturing firms, as Newmont Goldcorp scaled 1.1% and Polyus International advanced 2.3%.
Natasha Kaneva, commodities analyst at JPMorgan, said: “Markets tend to overreact to geopolitics when trading is thin, as it has been during the post-holiday period, but investors are right to fret about what is happening in the Middle East.”
Aditya Pethe, director of Waman Hari Pethe, also remarked however that: “Demand could slow down because of the sudden jump in price, but once it stabilises, people will resume buying.”
Goldman analysts currently believe that Gold may in fact be a better bet than oil at the moment, but it all depends on what happens next in regard to the political situation between Iran and the US.
Cryptocurrencies followers forecast Bitcoin to replace fiat currency and become the only method of value exchange. With bitcoin induced demonetization, Bitcoin should change people’s relationship with money. The fact that people will be the owner of their money and its value is seen as one of the distinctions that will make most people avoid fiat currencies.
Bitcoin prices have become a bellwether for the market. While still difficult to nail down an exact characterization of cryptocurrency and how it fits within the modern financial pattern — whether a currency, digital asset or a commodity — by evaluating the price action in the context of its more established analogs, it becomes apparent that Bitcoin and its peers have reached significant milestones.
The acuteness of the cryptocurrency market has made it obligatory for traders to make quicker decisions and perform transactions faster. These demands led to the development of the Bitcoin apps to offer traders an automated trading platform and more leverage in the market.
The Bitcoin apps enhanced a unique algorithm that can interpret and process the market signals faster such as the bitcoin revolution. If the bitcoin revolution is over then the users are forced to invest from the beginning, without trying the platform first.
The price of Bitcoin has fallen from $13,200 to $9,684, with major cryptocurrency exchanges, including Coinbase, recording a 26.6% drop within a period of seven days. The recent fall of Bitcoin is widely believed to be a technical factor that was pushed by sellers who took control of the market once the dominant crypto asset went below key support levels at $11,500 and $10,500.
The recent rise was not a rise at all but in fact a fall. in other words, the value of Tether (controversial cryptocurrency with tokens) dropped so in order for altcoins to keep their value up they needed to rise against Tether, when bitcoin rises (assuming Tether is worth $1) altcoins seemingly rise up but not because they keep their value, in fact, they fall in value against USD and BTC but because this fall is not equal to bitcoin price rise, the final result is a rise.
For example, if bitcoin is $1000 and some altcoin is worth 0.1BTC and then bitcoin goes up to $2000 that altcoin if it remains 0.1BTC, will rise to $200 which is impossible for that coin to happen because there is nobody buying it.
What happens is that the rise of bitcoin from $1000 to $1000+ will start creating arbitrage opportunity in ALT/BTC and ALT/USD and as traders arbitrage this the final value of that coin will go somewhere between $100 and $200 and closer to lower bound. So the final result will be an altcoin worth around 0.06BTC which is a big fall but thanks to arbitrage traders the value of it rose a little to $120 in a fake manner.
Here Leigh Moody, Managing Director at SOTI UK, explains the full extent of AI’s impact on the mobile workforce of businesses across the nation.
At one level, automation and AI offer helpful solutions when recruitment is challenging, or where staff can be better utilized in other parts of an organisation. More broadly, there is no doubt that AI can add value to an increasingly digital workplace, and adoption is rising while some barriers remain. Consequently, one in five businesses intend to implement AI across their organisation in 2019.
Some organisations are already experiencing the benefits of AI as it becomes mainstream, and there is a definite fear that those who are not already experimenting with AI will be left behind. When evaluating the impact that AI will have on the future workforce, it is essential to explore practical use cases in business.
For many companies today, AI represents an exciting opportunity to improve efficiency and enhance business performance. At an individual level, AI automation gives workers more options and the chance to be freed from routine tasks so that they can focus on bigger, more rewarding challenges. For many, this means working in a mobile, flexible manner facilitated by Internet of Things (IoT) technologies and remote access to data and work-specific applications and programs, most of which are in the cloud.
AI benefits workers and organisations alike, because it can optimise personal autonomy and convenience while reducing capital costs, especially where there is a Bring Your Own Device (BYOD) policy in place. In 2018, research for the UK government’s Department for Digital, Culture, Media and Sport found that 45% of businesses routinely allowed staff to use personal devices for work. But BYOD must be implemented with care, since it inevitably leads to a number of unknown and possibly unsecure devices being connected to an organisation’s network which can have dire consequences for security.
At this point, however, key aspects of AI that make it attractive for business begin to interface with a much less ideal use of the technology. AI-powered cybercrime – which, ironically, often mimics enterprise-level AI applications – is a very serious and rapidly increasing threat to businesses and individuals alike. In 2017, just under half of all UK businesses identified at least one cybersecurity breach or attack, and this showed no signs of slowing down the following year. Hacking, phishing and malware are now key threats to businesses of all types and sizes in the UK.
Mobile workers are tempting targets for cybercriminals as mobile endpoints are often a weak point in an organisation’s cybersecurity system. Cyber criminals deal in data: on the dark web, the most mundane personal details can be bought and sold for cash. Greater volumes of data mean greater profit, so criminals have used AI to automate hacking to an industrial scale, harvesting massive volumes of corporate and personal data. Where those criminals deploy or threaten malware, ransomware and distributed denial of service attacks (DDoS), companies can lose vast amounts of their data at a keystroke, which is often permanent.
Even where corporate-owned mobile devices are mandatory, if they are not properly protected, criminals can use them as a vulnerable point of entry to the network, and BYOD environments carry an even greater risk. It is more difficult to control the exposure to dangerous websites or applications in non-work settings, which can put an unsecure network at risk.
Yet, while AI has fuelled this situation, it can also help solve the problems that are arising. This is because AI technology has been instrumental in the development of real-time security and device management solutions, which – like cybercriminals’ use of AI and enterprise automation – learns from past experiences, patterns of behaviour and incoming data, and responds intelligently and immediately to evolving threats.
If companies want to stay competitive, they have little choice but to expand their mobile deployment, while ensuring they are protected against evolving cybersecurity threats. By securing all endpoints under a single, integrated enterprise mobility management solution, companies can reap the full benefits of their mobility investments while enjoying the peace of mind that only real-time cybersecurity can bring.
After spending a year and a half in the bear market, the price of Bitcoin has recently increased and the bull run is in full force. Although there are certain factors that may have a negative impact on the value of Bitcoin, it is likely that in the long term it will transform into a safe asset due to its rarity. However, the uncertainties of its future can make the price fluctuate daily.
Following a report that Gate.io’s research team launched looking at the fluctuation of the currency, Marie Tatibouet, CMO at Gate.io, teams up with Finance Monthly to take a look at a number of factors that can influence the price of Bitcoin.
One factor that can influence the price of Bitcoin is user adoption of the asset. Popularity of the currency can drive prices up, whereas if the demand for the currency is low, it can decrease the value. Individuals, governments, institutional investors and multinational corporations are adopting Bitcoin, therefore it is evident that the price will be pushed to a new high.
Findings from the report underlined that from 2012 and 2018, the number of Bitcoin addresses with 100 to 1000 BTC gradually increased, accounting for a considerable portion of the Bitcoin in circulation. Additionally, during 2012 and 2015, the price of Bitcoin fluctuated, with it becoming more affordable whist the mining difficulty decreased, and then increasing again. Between 2016 and 2017, Bitcoin became more expensive and the difficulty of mining increased, therefore the growth of Bitcoin slowed down considerably.
In addition, Bitcoin reward halving is a contributor to the fluctuating price of the cryptocurrency. Bitcoin has a fixed amount of 21 million, unlike fiat money which can be inflated by the centralised authority. It is intended that when 210,000 blocks are generated, the reward from Bitcoin mining will half. Since this was introduced, it has happened twice where the reward has halved - resulting in a fall from 50 BTC to 12.5 BTC. On average this happens every four years.
As a result of Bitcoin reward halving, there is a significant impact on the mining industry. Following the first and second halving, the hash rate decreased, but recovered quickly. Throughout 2018, when the price of Bitcoin was falling, a number of miners decided to leave the practice as well as a few mining pools closing down. This highlights the effect the changing price of Bitcoin has on the industry. However, with this being said, there seems to be a wider acceptance of Bitcoin today. The hash rate began to stabilise at the beginning of 2019, suggesting an optimistic market.
Cryptocurrency regulations is another factor that can affect the price of Bitcoin. As the cryptocurrency industry has experienced rapid acceleration, regulatory bodies have started to pay more attention to the industry. Governements are now taking note of money laundering, terrorism financing and other criminal activities that can be linked with cryptocurrencies. An example of this is in Canada where amendments to the ‘Proceeds of Crime and Terrorist Financing Act’ now require businesses dealing with virtual currencies to register with the Federal Financial Intelligence Unit.
The development of Bitcoin in most countries is unrestricted, with the report highlighting that among 126 countries, 67% of them consider Bitcoin as legal, whilst 19% of them remain neutral. On the other hand, only 8% the 126 countries deem Bitcoin illegal. The response from regulatory bodies can cause the value of Bitcoin to go up or down.
Although the future of individual cryptocurrencies are uncertain, the industry is growing as a whole. Predicting the price of individual cryptocurrencies is nearly impossible, but Bitcoin’s recent Strength Indicator shows clearly that Bitcoin is here to stay, at least for the next few years. With additional certainty, we should expect a price increase and stabilization. Bitcoin has created vast opportunities and possibilities and its full potential is yet to be reached. Bitcoin has come so far in the past 10 years, so it will be interesting to see where it will be in the next 10 years and the true value it will offer.
Over its 10-year life Bitcoin has been the standard bearer of the new financial revolution. As the baby of the 2008 global financial crash, Bitcoin was launched as a direct challenge to banks and other financial intermediaries – a middle-finger to fiat currency markets. Below Kerim Derhalli from Invstr, provides expert detail on the rise and impact of the prized digital currency.
Enormously popular with those who grew up during that very crash, Bitcoin became an outlet for their anger and rejection of the traditional currency systems. These were people who felt excluded from the club of the global financial elite, an elite who had driven asset prices – stocks, bonds and property – far out of the reach of the ordinary saver. At last here was an asset that they could claim for their own. The early returns were spectacular. A new class of financial investor was born. A digital divide was created.
Bitcoin’s impact has been as much a cultural one as it has been a financial one. The Bitcoin revolution has been defined by self-empowerment and self-direction. Such is the extent of its impact on Internet culture, that there are now entire lexicons dedicated to Bitcoin investing – from ‘HODLing’ (hold on for dear life) and ‘SODLing’ (sell off for dear life) to Bitcoin ‘mining’.
Like many revolutions, Bitcoin’s emergence has resembled a rollercoaster ride. Since its first transaction on 12th January 2009, it has enjoyed enormous growth and now sits at a current value of nearly £5000. With this growth however has come seismic price crashes. Back in November 2013, a single day saw 50% of Bitcoin’s value wiped out – the biggest single-day crash experienced by the cryptocurrency. Similarly catastrophic crashes and corrections have become near-commonplace on the Bitcoin market. Across only three days of trading in April 2013 Bitcoin’s value dropped a staggering 83%.
Bitcoin’s revelatory impact on both the global fiat currency system and internet culture might never have come to be were it not for the very technology which underpins it. In following the bumpy ride of bitcoin over the past ten years, we’ve also come to learn more about its elusive public ledger - blockchain.
The blockchain may have risen to notoriety on Bitcoin’s coattails, but now we find that the financial and tech sectors are waking up to it more generally. We’re seeing more banks, and industries, recognise its potential as a payments system and we’ve even see the world’s first blockchain-drive smartphone from HTC.
Some people have compared blockchain to the infancy of the Internet in 1996. The major difference however being that in 1996 anyone with a browser had access to an infinite source of information. The Internet’s potential as an encyclopaedic resource gave it a driving purpose. Today that mass use case for blockchain is still missing.
This isn’t the only hurdle which blockchain needs to overcome to forge an identity of its own. To truly divorce itself from the price volatility of Bitcoin and the speculative nature of crypto trading we need to see that it can resolve scalability issues as well as help us to overcome security issues more broadly.
For all is pitfalls though, Bitcoin, and by association blockchain, still represent the next phase of the digital revolution. As people continue to reject the traditional top-down approach to information dissemination and finance, Bitcoin, other cryptocurrencies and their associated technologies will take human civilisation towards a more self-empowered future.
After some time of speculation, the Bank of England confirmed interest rate hike last week, by 0.25%. Already we have seen some banks act fast in passing this hike onto the customer, in particular mortgage buyers, as opposed to savings rates.
In this week’s Your Thoughts, Finance Monthly has collated several expert comments from UK based professionals with expert knowledge on this topic.
Richard Haymes, Head of Financial Difficulties, TDX Group:
While an interest rate rise is positive news for people living on their savings income, or holding pensions and investments, it may prove to be the tipping point for those in financial difficulty or struggling with debt.
Individual Voluntary Arrangements (IVAs) have reached record levels and we expect the rate of monthly IVAs and Trust Deeds to grow by around 17% this year. A rise in interest rates will make it much harder for people in these arrangements, and there’s a risk they’ll default on their strict requirements.
A large portion of people who are in personal insolvency hold a mortgage (over a fifth according to personal insolvency practice Creditfix), and a rate rise will obviously increase their mortgage repayments. Due to these people’s unfavourable credit circumstances, it’s likely that majority of mortgage holders in insolvency are tied to variable mortgage products, leaving them particularly vulnerable to a higher interest environment.
Holders of a £250,000 mortgage will have to absorb a monthly repayment increase of £31* as a result of this 0.25% hike. Modest as it may appear to many, for people in structured debt management plans or IVAs this could have a very significant impact, even resulting in their debt solution becoming defunct or in need of renegotiation.
Jon Ostler, UK CEO, finder.com:
This rate rise decision comes as no surprise. Our panel of nine leading economists unanimously predicted that the interest rate would rise by 25 base points, and this is a positive sign that the economy is growing stronger.
It’s particularly good news for savers, who have suffered ultra-low interest rates for the past decade. They can expect a rise to their savings, albeit a small one. Now is a good time to consider switching your banking products, as banks will be reviewing their rates. Make sure you keep an eye on which banks are offering the best interest rates as not all of their products will increase by the BoE’s 25 basis points.
On the other hand, borrowers and homeowners with a mortgage are likely to face extra costs. For example, those paying off the UK’s average mortgage debt with a variable rate mortgage face paying an extra £17-£18 per month, which adds up to an extra £200 per year or more than £6,000 over the life of a 30-year loan term.
Angus Dent, CEO, ArchOver:
While banks are likely to pass the rate rise straight onto borrowers, they will be less keen to pass it on immediately to savers. Aspirational borrowing such as mortgages and bank loans will get more expensive – so the man in the street needs to counter that with strong returns on savings. Only 50% of savings account rates changed after last year’s rise, so there’s good reason to be underwhelmed.
But this is certainly a step in the right direction for the cautious Bank of England. While such an incremental rise won’t shake the earth, and probably means business as usual, it nevertheless spells good news for the UK.
The country is still hungry for a stronger economy, ten years after the financial crash. Both savers and investors are now aware that to chase higher returns, they need to open the door to alternative opportunities. Alternative finance options that offer higher yields – without sacrificing security – offer savers a path to higher returns in a still-struggling economy.
Savings accounts still aren’t the safety net they once were. Despite this rate rise, savers still need to cast the net wide in the hunt for higher returns.
Markus Kuger, Senior Economist, Dun & Bradstreet:
This rate hike had been anticipated by the markets, despite inflation having fallen in recent months, as UK growth seems to have recovered from the poor performance in Q1. The effects of the rate rise will be minimal, given the Bank’s forward guidance over the past months. The progress in Brexit talks will remain the most important factor for companies and households in the near to medium term. Dun & Bradstreet maintains its current real GDP and inflation forecasts for 2018-19 and we continue to forecast a modest recovery in 2019, assuming the successful completion of the talks with the EU.
Max Lehrain, Chief Operating Officer, Relendex:
The increase in interest rates is a significant moment as it is the first time the Bank of England has raised interest rates above 0.5 in nearly a decade. However, for savers, this change should act as a wakeup call as it is not likely to have a material impact on their investment meaning that those stuck in standard savings accounts are still missing out.
This is in large part down to the rate of inflation far outstripping interest rates, even with today's increase. In simple terms this means that if your savings earn 0.75% interest they are being eaten into by the effects of inflation.
With traditional lenders offering low returns on their savings accounts and cash ISA products, savers who are looking to achieve higher rates of returns should still consider alternative options. Peer-to-Peer (P2P) lending for example, can offer substantially higher returns, giving a good income boost when interest rates are still relatively low.
Innovative savers will identity these options to take this interest rate rise out of the equation. In real terms, over a three year period investing £5,000 in a cash ISA is likely to render a return ranging from £15 to £113, whereas P2P providers offer prospective returns far exceeding that. For example, investing £5,000 in a provider that offers 8%, would see returns of approximately £1,300 over a three year period.
Nigel Green, CEO, deVere Group:
Hiking interest rates now – for only the second time since the financial crash – is, to my mind, premature.
At just above the Bank’s target of 2%, inflation is not currently a key issue. In addition, major uncertainty surrounding Brexit, the looming threat of international trade wars, and absolutely average economic growth, business and consumer confidence are on the slide.
As such, there seems little real justification to increase interest rates now.
Against this back drop, why is the Bank of England raising rates today?
Has the decision been motivated in order to protect reputations and credibility after the Bank’s Governor and some of the committee had effectively already said the rise would happen?
Whilst today’s decision to hike rates is unnecessary, I think that the Bank is likely to refrain from any more increases until after Brexit.
Paul Mumford, Cavendish Asset Management:
The decision on balance might be the wrong one. While all agree that rates need to return to normality eventually, panicking and doing it for the sake of it - or just because other countries are doing it - will only make things worse.
The idea, as in these other regions, is to start incrementally escalating rates in a managed way as growth and inflation tick up. But the UK is in quite a distinct situation. To borrow some terminology from the Tories, the economy is stable, but far from strong - and certainly not booming. Higher interest rates could have very disruptive effects on sectors such as housing, where it could trigger a rush to buy at fixed rates, and motors and retail, which are performing OK but contain a lot of highly geared companies. This does not look like the sort of economy you want - or can afford - to remove demand from. Meanwhile the pound is holding firm at its lower base, so there is no immediate impetus to shore up the currency.
And of course looming behind all this is Brexit. Interest rates may be needed as a weapon to combat sudden inflation from tariffs should the worst happen and we crash out of Europe without a deal. It would make more sense to save the powder until there is more clarity on this front, and we now what sort of economic environment we're all heading into. The last thing we want is to be in a situation where we are stuck with higher and higher rates to combat inflation, while growth remains anaemic or stagnant.
These things are all swings and roundabouts, of course - one big plus from rate rises is that they will ease our mounting problem with big pension fund deficits. Whether this will make it worth the risk remains to be seen.
Stuart Law, CEO, Assetz Capital:
It looks like savers will be disappointed once again. Although the rate has risen slightly, this is unlikely to be passed on to savers, with many banks having form for just applying increases to borrowers.
What’s more, the Bank of England's statement that future increases will be at a 'gradual pace' implies that savers won't see returns that outstrip inflation for months - and potentially even years.
Rob Douglas, VP of UKI and Nordics, Adaptive Insights:
Ultimately, it is the companies that do not currently have sound financial planning processes in place that are likely to be impacted when changes like this occur, as it can upend budgeting and forecasting, making it difficult for finance and management teams to develop accurate financial plans and make business-critical decisions.
The 0.25% extra interest rate is being announced at an already uncertain time, when many fear the long-term effects of a possible no-deal Brexit or a potential trade war with the US on their business, organisations across the country will need to once again adjust their financial plans accordingly. To do this, companies must plan in real-time, with current data from across the organisation, so that they can mitigate potentially damaging consequences, such as a negative impact on profit margins.
The interest rate hike, while expected, is a reminder why businesses need to be able to continuously update their financial forecasts in real-time. Manual spreadsheets and processes simply don’t cut it anymore and finance teams need to be able to respond to economic changes such as this efficiently and effectively. With a modern, active approach to planning and forecasting, businesses will have the foresight and visibility to make better decisions faster, minimising the impact of unexpected government, regulatory or economic changes.
Paddy Osborn, Academic Dean, London Academy of Trading (LAT):
As widely expected, the Bank of England’s Monetary Policy Committee (MPC) raised the UK base rate by 0.25% today, stating that the low GDP data in Q1 2018 was just a blip, the UK labour market has tightened further and wage growth is increasing. This is the highest level of interest rates in the UK in more than nine years, and the MPC’s vote to raise rates was actually 9-0, against expectations of 8-1 or even 7-2.
There was also an unanimous vote to keep the level of government bond purchases at £435 billion, although the MPC remains cautious about the potential reactions of households, businesses and financial markets to future Brexit developments.
Assuming the economy develops in line with current projections, they stated that any future increases in the Bank rate (to return inflation to the 2% target) are likely to be “at a gradual pace and to a limited extent”.
In currency markets, GBP/USD spiked 50 pips higher from 1.3070 within 10 minutes of the announcement, but has since collapsed back below 1.3100. The longer term view for GBP/USD remains bearish, although there are a number of political and fundamental factors which may affect Cable in the coming weeks, namely Brexit developments, the developing trade war, and US interest rates.
The stock market, having fallen over 200 points since yesterday morning, failed to find any solace in the MPC comments and is currently trading at its 1-month lows around 7550. Higher interest rates mean higher cost of debt for companies, and this will often encourage investors to take some money out of their (more risky) stock market investments.
Feel free to offer Your Thoughts in the comment box below and tell us what you think.
Last November, the Bank of England raised interest rates by 0.25% - the first increase for ten years. The Governor of the Bank of England, Mark Carney, warned that we could see two more increases over the next three years – but then in February of this year, the Bank’s policy committee warned that rates may actually need to rise “earlier” and by a “somewhat greater extent” than previously envisaged. Below Steve Noble, COO at Ultimate Finance, provides excellent insight into protecting against rate changes from hereon.
This will concern many SME owners. Research has shown that a quarter of SME entrepreneurs have funded the growth of their business through their own personal finances. The higher payments required when rates rise across mortgages, credit cards and other loans could put a squeeze on them at a time when conditions are already challenging. This is particularly true if high street banks tighten their lending to specific sectors, as happened during the last recession.
If this happens, good businesses could find themselves pressurised on both sides – putting jobs and entire organisations at risk.
My advice to small business owners and entrepreneurs worried about the prospect of almost certain rate rises is to assess the situation in a series of steps:
Work out what impact a rise of 0.25% or 0.5% would have on your repayment costs
Get your calculator out! Pool together all the finance products you have on variable rates and see how much a rate rise could add to your repayments. Many finance websites have handy calculators that will do this for you. The impact of a 0.25% increase may be small on one individual product, but if you have several it could add up.
Is this something that you can absorb, or will it put a strain on already stretched cash flow?
Think about what the likely increases mean for your business. If you are funding the company through your own finances, will rate rises create difficulties? If finances will be too tight following rate rises and banks reign in on lending, there’s no option but to look at the alternatives and rather than expecting the high street to come up with the answers.
Review your business costs and income
Are there are any unnecessary expenses you can cut out? Little business ‘luxuries’ you’ve been allowing that might need to go? On the income side, have you been undercharging for certain services or are you running ‘special offers’ that might need to end?
Fight back against late payments
Research by the FSB shows that late payment costs the UK economy £2.5bn every year and results in more than 50,000 business deaths. If rates rise as expected, black holes in your cash flow caused by late payments will have increasingly dire consequences. Have serious conversations with your partners and suppliers to lessen the problem, rather than accepting it as a usual part of running a business.
Explore the finance options
There are many forms of finance outside of traditional bank loans. For example, invoice finance that enables you to borrow funds against the value of invoices you have issued but not yet been paid for. Purchase finance that pays your suppliers for goods you buy from them. Asset finance for the purchase of business equipment. Or simply short-term loans to help you meet your needs.
Although banks will offer services of this type, the customer experience will be vastly different. Where high street banks will reject a business that doesn’t meet its pre-set criteria, other providers will offer a more flexible, tailored approach. A solution can be produced with payments terms that suit the business in question, rather than a set agreement which simply won’t work for many in need of financial support. As rate rises seem to be looming, now is the time to begin doing your homework.
SMEs are the growth engine of the UK economy and now more than ever its vital they are supported at every turn. Although rising interest rates will prove difficult for many, for those who plan for the future now, the road will become much less rocky.
Below Dan North, Chief Economist at Euler Hermes North America, lists several updates and thoughts on the latest matter surrounding the US federal reserve.
Today reports indicate the FTSE closed on a record high yesterday, outperforming its already high record from Friday last week, following the Bank of England’s anticipated decision to raise interest rates from 0.25 to 0.5% last week.
The truth is, this changes a lot, from mortgages to bonds. Below Finance Monthly hears from many sources on Your Thoughts, how consumers should behave, how banking may evolve, how profits can change, what might happen to the pound in weeks to come and so forth.
Anthony Morrow, Co-Founder, evestor.co.uk:
In theory, the rise in the interest base rate should mean that consumers get higher interest rates on their savings. However, people shouldn’t get too excited about this. It often takes many months for the changes to be felt in savings accounts, and even then, the increases in savings rates can be marginal and may take years to build into noticeable rates of anything over 3%.
Consumers should also consider that the increase in base rate still means that their cash savings are playing catch-up. The past decade of interest-rate squeezes has meant that the value of cash savings have dropped instead of increasing in value.
The best course of action is for consumers to spread their savings and investments, and to look for alternatives to the traditional high street savings accounts and cash ISAs. It’s now easier than ever for consumers to invest money via the internet in stocks, shares and global investment funds that could generate average returns of between 5% - 7%. The key thing though is to ensure people get advice about what to do with their money before they part with their cash – this isn’t always readily available – and to check any charges that they’re likely to incur for making investments. In some cases, excessive fees can eat massively into the investment returns, sometimes by as much as half.
Gianluca Corradi, Head of Banking, Simon-Kucher:
Investors with shares in UK banks can cheer as the rate increase will boost the operating profits in the retail banking industry by £274 million over the next 12 months. This 3.1% increase in the operating profit of the banks will be positive news for the shareholders as the U.K. banks have had their profitability squeezed in a low rate environment despite numerous cost cuts and efficiency increase measures.
The gain for shareholders is expected to come as banks increase the lending rates immediately but deposit rates only gradually and by a lower amount. We can expect the banks to immediately increase the interest charged on new loans and those on variable rates by the full 25 basis points (bps), giving a boost of about £1.26 billion in their interest income for the coming year. Concurrently, the interest expense on deposits is likely to rise by just under £1 billion as the rates for savers rise over time.
Consumers can expect modest returns on their deposits as rates, though higher, will still be low in absolute terms. For instance, a saver who manages to get the entire 25bps increase on £10,000 of deposits, would stand to make an additional £25 over a year.
Paresh Raja, CEO, MFS:
In light of rising inflation and stagnating economic growth, the decision to increase interest rates for the first time in a decade comes as no surprise. Nevertheless, it is important to note that the rise in interest rates will place an added financial pressure on first-time buyers and buy-to-let investors needing to borrow money. While the impact on the UK property market may not be immediately obvious, there is no question that this month’s upcoming Autumn Budget now takes on greater significance as it must find ways of alleviating stress and providing support for property buyers. With the interest rate now sitting at 0.5%, this is a prime opportunity for the Government to address issues like real estate demand and Stamp Duty to ensure the market remains buoyant and readily accessible for homebuyers and investors alike.
Angus Dent, CEO, ArchOver:
This rate rise of 0.25% is largely symbolic. At the same time, it’s also a year too late. Dropping the interest rate below 0.5% was the wrong decision in the first place. The Bank should have pushed rates up to 0.75% as a show of strength that would have driven inflation down as the pound rose.
Although this rise is unlikely to have any major material effects, it is a return to the trajectory we should have been on for the past year, and a good sign for a bolder policy. For many, the move towards a higher interest rate will simply mean business as usual.
Following the financial crash, there is a hunger to make up for ten lost years and UK savers and investors are finally waking up to the realisation that they need to chase higher returns. With interest rates remaining below 1%, this means looking for opportunities to branch out beyond traditional vehicles and introduce greater diversity into portfolios to secure a higher yield.
Emmanuel Lumineau, CEO, BrickVest:
This announcement is momentous for the UK economy and should signal the start of a series of gradual increases. The Bank of England has decided that inflation is potentially getting out of control and the economy now requires higher borrowing costs. The decision also signals that the UK economy has not performed as weakly as the Bank predicted last year.
Increasing interest rates has a direct impact on real estate. Higher interest rates and rising inflation make borrowing and construction more expensive for owners, which can have a constraining effect on the market but can also lead to an increase in property prices. There has certainly been an abundance of international capital flowing into real estate, almost every major institutional investor globally has been increasing their portfolio allocation to real estate over the last five years mainly because of lack of alternatives.
We continue to see the highest level of volatility from the office sector as many international firms currently headquartered in the UK put decisions on hold over their long-term office space requirements. If the UK no longer gives businesses access to the European market, they may need to spread their staff across multiple locations to more efficiently access both the UK and European market. Indeed our recent research showed that 34% of institutional investors believe the biggest real estate investment opportunities will be found in the office sector and the same number in the hotel & hospitality industry over the next 12 months.
Uma Rajah, CEO, CapitalRise:
The Bank of England’s decision to raise its base rate of interest from 0.25% to 0.5% might superficially look like good news for savers, who have had to live with near non-existent returns on their deposits for some time. But in reality it is highly unlikely that banks will actually pass on much — if any — of the rate rise to their customers. It’s more likely they will act to increase their margins, focusing on improving their own profitability rather than doing what’s best for customers. Savers should take note and look for alternative, more lucrative, ways to grow their pot with minimal additional risk. While the base rate will continue to rise over the next 12 to 18 months, it could be some time before banks pass on the benefits.
Meanwhile, the rate rise is bad news for property developers and borrowers that are using banks to finance their loans. Banks charge based on a margin to LIBOR, which will go up in line with the base rate rises. Combine this with other longstanding challenges in securing finance from banks for real estate projects in the current climate, and property borrowers will be much better off looking at more innovative sources that can deliver finance more quickly and offer better value — particularly if the rate continues to rise over the next 12 to 18 months.
James Bentley, Trader, Learn to Trade:
Following the Bank of England’s announcement that interest rates are rising by 0.25%, the British central bank will hike borrowing costs for the first time in more than 10 years due to the recent surge in inflation.
Many economists have warned that the time is not right for a hike as recent data has painted a subdued picture of the economy while uncertainty over how Britain's withdrawal from the European Union will play out remains. With Brexit negotiations still underway, British consumers should prepare themselves for further fluctuations to interest rates over the next year.
The pound has pushed higher against the dollar in early trade, while London's FTSE100 searched for direction ahead of the announcement. Although the announcement has created uncertainty, we expect inflation to drop to 2.2% by 2020 - where the rate will stagnate and hold for a period of time.
Paul Davies, Director, Menzies LLP:
Even though the rate rise was well signposted by Mark Carney, it will bring hardship for businesses that rely on consumer spending.
Consumers are always wary of a rise in interest rates and we may see the retail industry experiencing a bumpy ride as UK shoppers tighten their purse strings. Businesses can defend against the effects of turbulence by ensuring cash management is a top priority, managing creditor payments and adapting to changes across the supply chain.
Consumers and businesses will be hoping that after the announcement, any further interest rate rises will be staved off until well into the New Year.
Mihir Kapadia, CEO and Founder, Sun Global Investments:
The Bank of England has given in to the rising inflation, which has been above their 2% target and peaking at 3%, by raising interest rates for the first time in a decade. While the interest rate hike bodes well to support the pound, it also increases the borrowing costs for consumers and business. It will mean an increased squeeze on consumers with loans and mortgages, thus nipping their spending and in turn affect the economy. It may well turn out to be a vicious loop, especially as Brexit woes continue to weigh down on the UK’s economy.
The last the time the Bank of England had increased the interest rates was in July 2007, when it pushed the cost of borrowing to 5.75% months before cutting them during the onset of the financial crash of 2008. This increase comes at a time when the economic framework has stabilised and careful credit scrutiny is in place to prevent another crash. The interest rate hike may well deter consumers from accessing cheap credit, which will bode well for the financial watchdogs.
The next interest rate hike may well take a while, until further clarity emerges on Brexit’s impact on the UK economy. Until then 0.5% is the only sword to battle 3% inflation, and curtail it from strengthening any further.
Frazer Fearnhead, Founder and CEO, The House Crowd:
I sincerely hope all the banks will have given as much thought and effort to increasing interest rates for investors as they will have given to helping people maintain their mortgage repayments and loan agreements”. He added “For the past decade investors have been forgotten and suffered derisory levels of returns on their savings. So, it is crucial that banks, increase interest rates on savings just as quickly as they increase interest charges to borrowers.
Gregg Davies, Company Director, IMA Financial Solutions:
We all talk about the winners and losers when Bank of England interest rates are mentioned. Of course, if you have savings on deposit in variable rate accounts, or a variable rate mortgage you could be affected directly.
Many are asking, will the rate rise make my mortgage more expensive? Most mortgage lenders offer fixed or variable rate mortgages, and many have already adjusted their fixed rate deals ahead of the speculation over an interest rate rise. Variable rates are either based on a lender’s own set variable rate or linked directly to the Bank of England – called trackers.
We have now had nearly eight years of unprecedently low rates - for a generation of first time buyers, low interest rates are all they have known.
Mortgage holders have taken the low rates on board, and today it is estimated that over 70% of mortgages are fixed rate deals – compared with a low of under 40% in 2001. On a day to day basis this is reflected in my own clients’ decisions.
Rob Douglas, VP of United Kingdom and Ireland, Adaptive Insights:
For many businesses across the UK, the rise in interest rates and subsequent fall of the pound will require action. Companies are operating in the midst of a volatile market, where the sterling went from being at its strongest since the Brexit vote, to taking an immediate tumble after the rise in interest rates was announced. This market instability can upend budgeting and forecasting, making it difficult for finance and management teams to devise an accurate financial plan and make business-critical decisions.
Economic and market volatility require businesses to be as agile and adaptable as possible to ensure their financial planning models reflect changing assumptions and conditions. To do this, companies must plan in real-time, with current data from across the organisation, so that they can mitigate potentially damaging consequences, such as a negative impact on profit margins. What’s more, businesses should prepare to be more responsive by running ‘what if’ scenarios in advance that will, for example, reveal the impact the rise in interest rates could have on their business, allowing them to make better, faster decisions.
Ultimately, it is the companies with sound financial planning processes in place that will have a better chance at success when volatility strikes.
Johan Rewilak, Economics Expert, Aston Business School:
Since the crisis of 2007, interest rates have been at record lows, and whilst this hike has only moved them back to pre-Brexit levels, the larger worry is about any future potential rises.
Since the decision has been made, Mark Carney and the MPC have already faced lengthy criticism about how the rate hike will impact the economy. There are those who believe recession is around the corner and that there was a desperate need to maintain interest rates at the 0.25% level to prevent this.
Those advocating the rise have done so by optimistically looking at data that shows unemployment has fallen to levels unseen since the 1970s and that the rate of underemployment (those working part-time who wish to work longer hours) has dropped. Nevertheless, wage growth (a metric of longer term inflation) has remained subdued.
My concern is and will be surrounding financial stability. Household indebtedness and mortgage to income ratios are at troublesome levels and any hikes in interest rates mean higher repayments. If the interest rate hikes lead to recession, this will only magnify these issues and have cataclysmic effects on the financial system as it did in 2007. Whilst, higher rates may put people off from future borrowing, there is a tricky trade-off surrounding those already highly indebted.
The upshot of this rate rise is that at least Mark Carney has two rolls of the dice if Brexit negotiations or the economy starts to sour before negative interest rates become a possibility. That being said, why would anyone raise interest rates that may create a recession just so they have the ability to lower interest rates and to try cure the problem
John William Gunn, Executive Chairman, SynerGIS Capital PLC:
This was widely anticipated by the wholesale markets following the language of the MPC’s September statement. The main question mark was over any Brexit-related outlook uncertainty. As the market had been positioned for this rise a failure to follow through could have caused the MPC credibility issues and sparked yet more speculation around Brexit headwinds to the economy.
For the general public, the good news is that more people are on fixed rate mortgages than ever so the effects for homeowners should be subdued. More people are renting and many households are lucky enough to be mortgage-free. As mentioned in the MPC statement, debt servicing costs paid by British households would remain "historically very low" despite this hike.
It’s not so great for first time homebuyers (many mortgage deals were withdrawn in anticipation of the BoE’s move) but attention now turns to whether the Chancellor can offer any stamp-duty concessions in the Budget on 22nd November.
It's good news for neglected savers and the retired. While still low, retirees shopping around for annuities should already be seeing improved rates. Not all high street banks will be passing this rate rise onto their savers. Some committed ahead of the decision but they were in the minority.
As with the FOMC (the Federal Open Market Committee = equivalent of the MPC) in the US, the first interest rise is psychologically important, as it reminds borrowers that base rates for the last 10 years are not at “normal” levels. It should not be forgotten that for the U.K this is just a reversal of the post-Brexit-result emergency cut in Aug 2016. Any pre-Christmas consumer sentiment change may affect spending at high street retailers who have had mixed trading results recently. As with the U.S central bank guidance, we expect any rate rises over the coming years to be on a slow and gradual basis.
Given the modest growth forecasts issued by the MPC and their expectation that inflation with peak at 3.2% in the October CPI release, we do not anticipate any further tightening from the MPC until Q3 2018. The Brexit influence is unlikely to go away soon, as noted by the MPC in their statement.
Duncan Donald, CEO and Head of Trading, London Academy of Trading:
Last week we saw the UK MPC and Mark Carney deliver a rate hike in the UK to 0.5%, the first hike since the financial crisis in 2007.
It came as little surprise, with the market pricing in a 90% probability of this action prior to the announcement on “Super Thursday”. The act of hiking rates is perceived as ‘Hawkish’ and would typically drive the currency higher, but the price action reflected this was all but priced in.
The other positive element of the meeting, was the split of the voting members of the committee. The result was 7-2, showing that 7 members of the committee were in favour of the hike, with just 2 members dissenting. Forecasters had thought the split may be tighter, with a 6-3 or 5-4 majority to hike. These being the first two factors announced to the market, saw the pound appreciate half a cent against the dollar from 1.3220 to 1.3270. This move was sharply unwound as the market plunged over 2 cents to 1.3040.
The driver was the announcement that Mark Carney and his committee anticipates just two subsequent hikes, and not in the next year but over the next 3 years. This signified that in the short term we are very much looking at the ‘one and done’ scenario. The fears of Brexit and the unknown have perhaps rightly got the committee apprehensive of doing too much too soon. This was further underlined at the weekend, with comments from Mark Carney regarding fears of inflationary pressures that could be caused if we were to leave the EU without a deal.
Market traders and investors still question Carney’s ability to actually deliver what he says he will, in this case to raise interest rates. This was the market opinion in the UK and in his previous position in Canada. He delivered on the interest rate hike, but as the markets reflect, it was done in the most dovish of manners.
We would also love to hear more of Your Thoughts on this, so feel free to comment below and tell us what you think!
Following the first increase in the Bank of England’s base rate in over 10 years, MoneySuperMarket’s money expert Sally Francis here provides some guidance for people who might be affected.
Sally said: “There’s been very little movement in the Bank of England base rate since 2009 so it’s understandable that most Brits aren’t sure how a shift could affect their finances. The 0.25% rise might seem small, but it could pave the way for a string of increases that could impact some of the biggest bills. We’re encouraging people to take control of their finances today and learn how any future changes could affect their money.
“A rise in the base rate, coupled with the end of the Funding for Lending scheme - a Bank of England incentive for financial institutions to borrow cheaply from it - early next year is good news for savers, but if you’re on a tracker mortgage your monthly instalments will rise as soon as any base rate increase is announced. If you’re on a capped or discount mortgage, you could also see increases so acting immediately could save you thousands in the long run, especially if base rate continues to rise. Switching to a fixed rate mortgage ensures that your monthly repayments stay the same for the duration of your fixed period, providing certainty and stability in your finances.”
For those with variable mortgages, the base rate rise might lead to higher monthly repayments, so here are MoneySuperMarket’s top tips:
Lord Alan Sugar is best known for his long tenure as host of the BBC’s hugely successful show The Apprentice.
His qualifications to sit across from hopeful candidates in the boardroom have been built up through years of diverse business experience from heading up an early computing giant (Amstrad) to more recently acquiring a lucrative property empire.
A self-made man with an innate sense of corporate strategy, Sugar rose from humble beginnings in a council flat to being appointed the UK’s Enterprise Tsar through tenacity, savvy and a tell-it-like-it-is attitude.
However, his rise from obscurity to celebrity wasn’t without its setbacks and stumbles. Here is the story of one of Britain’s most influential businessmen.
(Source: ABC FINANCE LTD)
Bloomberg Profiles looks at the story of Uber's Travis Kalanick and how he went from UCLA dropout to CEO of the world's most valuable technology startup.
Video by Michael Byhoff, Eric Newcomer, Brian Schildhorn and Christian Capestany.