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The recovery of the British stock markets is due to the central banks pouring more money into the economy. This has not only increased share prices but increased demand on government bonds. As the price of bonds continues to rise, yields will continue to fall. Take a look at how these yields affect mortgages, pensions, and savings, and how it impacts personal finances.
While savings rates have decreased across much of Europe, most of that is due to cuts of central bank rates and decreased bond yields. Lower rates are usually a reflection of lower yields in other parts of the economy. The Bank of England has also cut rates despite speculation that rates may increase.
Interest rates on deposits have been on the decline in recent years even though the bank rate has been set at 0.5% since March 2009. These lower bank rates mean that banks and building societies must offer lower savings rates. The Bank of England has pledged for others to do the same, causing consumer rates to decrease. This could have a positive impact on short term loans in the UK.
A “swap rate” is a certain rate that banks lend to one another. It has a huge influence on mortgages and savings rates. However, nothing in the financial market lasts forever. It’s possible that bond yields could increase and consumer rates would follow closely behind.
Since savings rates could fall, rates on mortgages could be cut. This could also lead to a decrease in rates on future and existing mortgages. Mortgages have been on the decline for years without changing the bank rate. According to the Bank of England, the fix rate has decreased from 4.3% to 2.52%.
If confidence in the government is uncertain, then rates could rise. Mortgages were on the decline before, but then rose again, according to comparison website Comparis. One reason is that deposits come with a cost, and that cost is a result of higher lending rates.
Those who plan to receive money from their pension should talk to their financial adviser about whether it’s better to wait after a period of time. While stock markets have successfully recovered in the past, they’re still extremely vulnerable. It’s strongly advised to move your pension portfolios away from your cash, bonds, or shares at another date you choose to withdraw the money. This process is referred to as “lifestyling,” and could prevent you from the stock market volatility.
Those who look to purchase an annuity should receive financial advice since annuities are also known to be volatile. Annuities are priced based upon the yield on gilts, which have been on the decline since the international banking crisis of 2007-2008. The uncertainty as a result of the financial crash has driven up prices and reduces yields.
The value of the British pound has fallen against the American dollar. It rose to a high of $1.48 on 23 June to a low of $1.31 on 27 June. By 30 June, it decreased 8.5% from its pre-Brexit value. The Euro also fell from €1.32 to well below €1.21 in just a week’s time.
The value of the British pound has affected many other foreign currencies. The pound has fallen 7.7% against the Australian dollar, 10% against the South African rand, and 9% against the Turkish lira since Brexit. These changes will only benefit those who transferred their money into sterling in any of these countries.
For now, there has been little impact on the stock market. There has been no impact on British investors who have investments in the UK stock market. Only foreign investors in the UK have been affected due to the decline of the pound.
Not all investors were afraid to sell some of their stocks following Brexit. Those who weren’t afraid to sell found great success in the stock market. There has been some positivity during these dramatic lows.
Cost of Living
It’s too soon to determine how Brexit will affect the cost of living. A falling pound could lead to inflation. The earliest example is the cost of petrol. Since fuel is valued in American dollars, when the pound loses against the American dollar, petrol dealers can raise gas prices.
Oil prices were on the decline after the result. But, according to motor group AAA, petrol prices could be on the rise again due to the currency rates. If the British pound’s weakness persists, the cost of imported goods could also rise. The cost of goods is depended on trade agreements between the EU and the UK, as well as other countries.
Despite some of the signs of financial gloom, Brexit doesn’t have to have a negative effect on personal finances. It’s best for money to be invested to avoid any problems This involves spreading your money between the UK and other overseas investments. The best alternative is keeping your money in the bank, where it’s safer, even though it doesn’t have any potential to grow.
Ryan Yarbrough is a small business consultant, speaker, and the manager at Davis Financial Services, a small business consulting firm.