The Mirror has an inflammatory headline “EU says pack your bags”. It is important to understand that once we made this vote we could no longer control the outcome. The leaders of EU countries do not want to see the economic issues now facing us to spread across Europe so they will act quickly to contain the issue and move the UK out of the EU.
This morning the UK has had its credit rating outlook downgraded to "negative" by the ratings agency Moody's. I suspect many people don’t know what that means because we don’t teach investment strategy in school. The rating agency looks at risk factors involved in purchasing shares, so that those that want to invest in companies can choose to balance the risk they take when investing their money, with the reward they hope to make in the future. A negative rating will lead to some investors selling more shares than they buy or selling for less. This will reduce the value of the stock market as a whole. This also has an effect on any ‘index linked’ financial product, such as endowments and pension funds.
In addition the pound has dropped in value, because fewer investors want to invest in our currency. This means you will get less of other currencies when you go abroad. It will probably recover a bit but we won’t see the strong pound again for a while. This has two impacts, money in the pocket becomes a little less valuable and the cost of living goes up because we import so much into the UK. All of these things will increase in price because the pound buys less. This then leads to a quicker rate of inflation.
The Bank of England might reduce interest rates to help people who may struggle to pay mortgages, however this causes problems for those who are retired and living off savings because interest on savings is also reduced. In the past some government policies have been to do the opposite; raise interest rates to attempt to reduce inflation, but this leads to people losing their homes or businesses becoming bankrupt.
One of the greatest misconceptions I have seen in the press is the idea that banks exist to ‘look after our money’. They don’t. They exist to make money. They offer interest for people to put money into a bank, so they can use that money to loan to other people, to invest in companies (or go on holiday), and they make money by charging interest – loan interest rates are therefore higher than savings interest rates. No altruism – don’t expect it.
The Daily Mail headline condemning the money traders for making money from a falling pound show a marked lack of understanding of what money markets are for. Investors trade in currency because they want the most stable currency, the traders make their commission on each trade. This is capitalism – this is how it works.
We don’t exist in isolation, we are only an island geographically and what happens in the UK affects global financial markets. So our decision has led to problems for the Japanese. They have a very strong export market and they didn’t need a strong Yen, a weaker pound has led to investors buying Yen. So our isolationist approach to voting has had reverberations all over the world.
I hope that we can find a way to quickly calm down the markets and reduce the impact on individuals. I hope that we can see some sensible fiscal policy making as we go forward. Now we must put our hurt, anger and ego to one side and start working on the policies, structures and innovations that will pull the UK back from recession. The EU must do the same, but without us. This was our choice, not theirs.
UK Credit outlook
This morning the UK has had its credit rating outlook downgraded to "negative" by the ratings agency Moody's. I suspect many people don’t know what that means because we don’t teach investment strategy in school. The rating agency looks at risk factors involved in purchasing shares, so that those that want to invest in companies can choose to balance the risk they take when investing their money, with the reward they hope to make in the future. A negative rating will lead to some investors selling more shares than they buy or selling for less. This will reduce the value of the stock market as a whole. This also has an effect on any ‘index linked’ financial product, such as endowments and pension funds.
In addition the pound has dropped in value, because fewer investors want to invest in our currency. This means you will get less of other currencies when you go abroad. It will probably recover a bit but we won’t see the strong pound again for a while. This has two impacts, money in the pocket becomes a little less valuable and the cost of living goes up because we import so much into the UK. All of these things will increase in price because the pound buys less. This then leads to a quicker rate of inflation.
The Bank of England might reduce interest rates to help people who may struggle to pay mortgages, however this causes problems for those who are retired and living off savings because interest on savings is also reduced. In the past some government policies have been to do the opposite; raise interest rates to attempt to reduce inflation, but this leads to people losing their homes or businesses becoming bankrupt.
One of the greatest misconceptions I have seen in the press is the idea that banks exist to ‘look after our money’. They don’t. They exist to make money. They offer interest for people to put money into a bank, so they can use that money to loan to other people, to invest in companies (or go on holiday), and they make money by charging interest – loan interest rates are therefore higher than savings interest rates. No altruism – don’t expect it.
We don’t exist in isolation, we are only an island geographically and what happens in the UK affects global financial markets. So our decision has led to problems for the Japanese. They have a very strong export market and they didn’t need a strong Yen, a weaker pound has led to investors buying Yen. So our isolationist approach to voting has had reverberations all over the world.
I hope that we can find a way to quickly calm down the markets and reduce the impact on individuals. I hope that we can see some sensible fiscal policy making as we go forward. Now we must put our hurt, anger and ego to one side and start working on the policies, structures and innovations that will pull the UK back from recession. The EU must do the same, but without us. This was our choice, not theirs.
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| Thanks Dave! |
UK Credit outlook
