‘Do you know what crypto is? Nope, absolutely no idea, do I need to?’
‘Meet our new political adviser!’
House Prices up 0.1% in June say Nationwide Building Society
UK house prices have defied expectations by increasing slightly in June 2023 but annual prices fell at the fastest rate since 2009 as soaring mortgage costs took a toll on the market, according to Nationwide Building Society.
The surprise monthly rise of 0.1% reversed a 0.1% fall in May 2023 and surprised economic forecasts of a 0.3% fall! It pushed the average cost of a house in the UK up slightly to £262,239. House prices were 3.5% lower in June 2023 compared with a year earlier, the sharpest rate of decline since 2009.
The sharp increase in borrowing costs is likely to exert a significant drag on near-term housing market activity
It is important to note that the housing market is subject to fluctuations and can be influenced by various factors such as economic conditions, government policies, inflation, interest rate increases and global events.
‘To live is the rarest thing in the world. Most people exist, that is all.’
Oscar Wilde
This quote, from Wilde’s essay, ‘The Soul of Man Under Socialism‘, suggests that most people do not live fully or authentically, but merely survive or conform to society’s expectations.
Are we restricted by society to conform? Do the rich conform less than the poor? Is it a foregone conclusion that the poor conform more?
Who’s voice is heard above the noise?
Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.’
Albert Einstein 1879 – 1955
Compound interest, an investors best friend
This is why? The concept is very simple.
Compound interest is simply interest added back to the original or principal sum and then more interest is earned or calculated on ‘that’ added interest over the next compounding period.
Like this…Year one…
Over a one year period: Take £1000 capital and add 5% interest (lucky if you can get it). That equals to £1050. That’s 1000 x 5% over 1 year = £1050.
Now this is the best bit…
Take your £1050 from the first year (original capital plus interest). Now, in year two it goes like this…
Year two…
Take the new value £1050 capital add 5% interest again (but this time it is added to £1050 not just the original £1000).
That’s 1050 x 5% equals £1102.50 we’re compounding the interest on the £50 earned in the first year as well as the original capital.
In the third year…
It will be £1102.50 x 5% = £1157.63 and so on.
You can clearly see why it is important to take advantage of compound interest. Leaving your money in a savings account right now with such low interest rates isn’t a wise option. But when/if you can find a sensible interest rate COMPOUND interest will be your best friend.
Don’t just take my word for it. Compound interest is in very good company.
Albert Einstein said this about it…
‘Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.’
He called it, ‘the greatest mathematical discovery of all time.’
Look at this table. It shows what £100,000.00 over 10 years will be worth if you add the interest back to the capital every year and compound it for 10 years.
Capital of £100,000.00 with 5% compound interest added over 10 year period
Start £100,000.00
Year 1 £105,000.00
Year 2 £110,250.00
Year 3 £115,762.50
Year 4 £121,550.63
Year 5 £127,628.16
Year 6 £134,009.56
Year 7 £140,710.04
Year 8 £147,745.54
Year 9 £155,132.82
Year 10 £162,889.46
Interest at 5% compounded over 10 years
Year 1 £5,000.00
Year 2 £5,250.00
Year 3 £5,512.50
Year 4 £5,788.13
Year 5 £6,077.53
Year 6 £6,381.41
Year 7 £6,700.48
Year 8 £7,035.50
Year 9 £7,387.28
Year 10 £7,756.64
Other types of interest are available – but compound is the best.
It’s time to compound your savings.
What are you waiting for… go do it now!
What is Crypto?
Cryptocurrency
Crypto, short for cryptocurrency, is a digital or virtual currency that uses cryptography for security and operates independently of a central bank. Cryptocurrencies are decentralised currencies, meaning they’re neither issued nor governed by a central bank.
Some cryptocurrencies are issued by their developers, while others are generated by their respective network algorithms. They exist and operate on a public ledger called a blockchain, which records all crypto transactions. Blockchain encryption is designed to make all transactions safe and secure from tampering, counterfeit, and other forms of fraudulent transactions.
Digital Wallet
Cryptocurrencies can be stored in a ‘digital wallet’ on a smartphone or computer, and owners can send them to people to buy things. Although we can’t see or touch cryptocurrencies, they do hold value. Cryptocurrencies are now being used to purchase many different products and services, and some people are even buying cars and houses with their digital assets. They’re not widely used at the moment, but many believe the use of cryptocurrencies could one day become a common way to trade.
Is there a future for a digital currency?
However, the future of cryptocurrency is uncertain and opinions are divided. Some predict that institutional money entering the market and the possibility of crypto being floated on the Nasdaq could add credibility to blockchain and its uses as an alternative to conventional currencies. Others predict that regulators around the world might come together on a global framework for crypto regulation, but this looks unlikely right now. It is impossible to predict the future of the crypto market with absolute certainty.
Despite a strong start to 2023, some analysts remain cautious on growth and predict pressure for digital assets. Cryptography and blockchains will continue to be integral parts of the modern economic toolkit.
In conclusion, while there is no consensus on whether crypto is the future of currency, it is clear that it has the potential to play a significant role in the future of finance.
Stop crypto?
There is evidence to suggest that the US, EU, UK and other nations are trying to regulate the crypto market. Some people in the crypto world believe that recent attempts to ring fence the crypto industry and cut off its connectivity to the banking system are reminiscent of a little-known Obama-era program called ‘Operation Choke Point’. This refers to a 2013 US government initiative that sought to cut off undesirable industries from banking services.
Meltdown
The sector was already under pressure, after prices of virtual currencies collapsed last year. Further damage came from the meltdown of several high-profile firms, including FTX, run by the so-called ‘Crypto King’ Sam Bankman-Fried, whom prosecutors have accused of conducting ‘one of the biggest financial frauds’ in US history. Jolted by the turmoil, US regulators stepped up their policing of the sector, which authorities say has been on notice since at least 2017 and that their activity runs afoul of US financial rules intended to protect US investors.
Crackdown?
The campaign has yielded a steady drumbeat of charges against crypto firms and executives, alleging violations ranging from failing to register properly with authorities and provide adequate disclosure of their activity to, in some cases, more damaging claims such as mishandling of consumer funds and fraud. The crackdown culminated this month in legal actions against two of the biggest platforms: Coinbase and Binance.
However, during a hearing on cryptocurrency and blockchain technology regulation, Senate Banking Committee Chairman Mike Crapo shared his belief that the United States would not be able to succeed in banning Bitcoin.
In conclusion, while there is evidence that the US is trying to regulate the crypto market, it is not clear if they are trying to stop it completely and there is also evidence that suggests that the US would not be able to succeed in banning Bitcoin.
What was operation choke point?
‘Operation Choke Point’ was allegedly an initiative of the United States Department of Justice that began in 2013 under the Obama administration. The program investigated banks in the United States and the business they did with firearm dealers, payday lenders, and other companies believed to be at a high risk for fraud and money laundering. It was an attempt by President Obama’s Department of Justice, the Federal Deposit Insurance Commission, the Consumer Financial Protection Bureau, and other government agencies to cut off banking and financial services for small businesses and industries that they deemed to be illegal enterprises or otherwise undesirable.
Digital currencies also became a target.
There are two I’s in Inflation…
Interest rates and inflation in the UK
The UK is facing a cost of living crisis as inflation has soared to its highest level in decades. The Bank of England has raised interest rates 13 times since December 2021 in an attempt to bring inflation back down to its original target of 2%. But what does this mean for consumers, savers and borrowers?
What is inflation and why is it rising?
The current UK interest rate is now: 5.0%
Inflation is the term used to describe rising prices. How quickly prices go up is called the rate of inflation. Inflation affects the purchasing power of money, meaning that the same amount of money buys less goods and services over time.
The rate of inflation in the UK is measured by two main indicators: the consumer price index (CPI) and the retail price index (RPI). The CPI is based on a basket of products and services that people typically buy, while the RPI also includes mortgage interest payments.
According to the Office for National Statistics (ONS), the CPI inflation rate was 8.7% in the year to May 2023, while the RPI inflation rate was 11.4%. This means that on average, prices were 8.7% and 11.4% higher respectively than they were a year ago.
The main drivers of inflation in the UK are:
- Energy bills: Wholesale gas prices have surged due to global supply disruptions since the pandemic hit in 2020, geopolitical tensions, the war in Ukraine and increased demand. The government introduced an energy price guarantee to freeze energy prices for six months, but prices still went up 27% in October 2022. The energy price guarantee has been extended.
- Shortages: The pandemic and Brexit have caused labour and supply chain issues that have affected many sectors, such as food, clothing, construction and hospitality. This has led to higher costs and lower availability of some goods and services.
- Demand: As the economy recovers from the lockdowns, consumer spending has picked up, especially on leisure and travel activities. This has increased the demand for some goods and services, pushing up their prices.
How do interest rates affect inflation?
Interest rates are the cost of borrowing money or the reward for saving money. The Bank of England sets the bank rate, which is the interest rate it charges to commercial banks that borrow from it. The bank rate influences other interest rates in the economy, such as mortgage rates, loan rates and savings rates.
The Bank of England uses interest rates as a tool to control inflation. The Bank has a target to keep inflation at 2%, but the current rate is more than five times that. When inflation rises, the Bank increases interest rates to make borrowing more expensive and saving more attractive. This reduces the amount of money circulating in the economy and slows down rising prices.
The Bank has raised interest rates 13 times since December 2021, from 0.1% to 5.0%. This is the highest level since March 2009, when interest rates were cut to a record low of 0.5% following the global financial crisis.
What does higher inflation mean for your money?
Higher inflation means that your money loses value over time. For example, if you had £100 in April 2022 and inflation was 8.7%, you would need £108.70 in April 2023 to buy the same amount of goods and services.
Higher inflation also affects your income, spending, saving and borrowing decisions.
- Income: If your income does not keep up with inflation, you will have less purchasing power and lower living standards. For example, if your salary was £30,000 in April 2022 and increased by 2% in April 2023, you would earn £30,600. But if inflation was 8.7%, you would need £32,610 to maintain your purchasing power.
- Spending: Higher inflation may encourage you to spend more now rather than later, as you expect prices to rise further in the future. However, this may also reduce your savings and increase your debt.
- Saving: Higher inflation reduces the real return on your savings, meaning that your savings grow slower than prices. For example, if you had £10,000 in a savings account that paid 1% interest in April 2022, you would have £10,100 in April 2023. But if inflation was 8.7%, your savings would be worth only £9,300 in real terms.
- Borrowing: Higher interest rates make borrowing more expensive, meaning that you have to pay more interest on your loans and mortgages. For example, if you had a £200,000 mortgage with a 25-year term and a 2% interest rate in April 2022, your monthly payment would be £848. But if the interest rate rose to 4.5% in April 2023, your monthly payment would increase to £1,111. Mortgage interest rates hit 6% in July 2023.
How can you protect your money from inflation?
There are some steps you can take to protect your money from inflation, such as:
- Review your budget: Track your income and expenses and see where you can cut costs or increase income. Try to save more and spend less, especially on non-essential items.
- Shop around: Compare prices and deals for the goods and services you need or want. Look for discounts, vouchers and cashback offers. Switch providers or suppliers if you can find better value elsewhere.
- Pay off debt: This is a priority! If you have high-interest debt, such as credit cards or overdrafts, try to pay it off as soon as possible. This will reduce the amount of interest you pay and free up more money for saving or investing.
- Save smartly: Look for savings accounts or products that offer interest rates higher than inflation (tricky to find). Consider diversifying your savings into different types of assets, such as stocks, bonds, property or gold. These may offer higher returns than cash in the long term, but bear in mind they also carry more risk and volatility.
- Invest wisely: If you have a long-term goal, such as retirement or buying a house, you may want to invest some of your money in the stock market or other assets that can grow faster than inflation. However, you should only invest what you can afford to lose and be prepared for the ups and downs of the market. You should also seek professional advice before making any investment decisions.
Conclusion
Inflation and interest rates are two important factors that affect the UK economy and your personal finances. The UK is currently experiencing high inflation due to various factors, such as energy prices, shortages and demand. The Bank of England has raised interest rates to try to bring inflation back down to its target of 2%. Higher inflation and interest rates have implications for your income, spending, saving and borrowing decisions. You can take some steps to protect your money from inflation, such as reviewing your budget, shopping around, paying off debt, saving smartly and investing wisely.
How well has the Bank of England done to keep inflation at or close to 2%?
See next article…
Virgin Galactic rocket plane enters commercial service
It’s taken nearly 20 years, but Sir Richard Branson has finally begun commercial space flights with his Virgin Galactic rocket ship, Unity
On 29th. June 2023, Sir Richard Branson’s Virgin Galactic successfully launched its first commercial flight to the edge of space. The flight was carried out by the company’s SpaceShip Two space plane Unity with a special passenger on board: the company’s billionaire founder Richard Branson. Branson was accompanied by three crewmates and two pilots on the historic flight.
The flight took off from New Mexico in the US after being carried into launch position by Virgin Galactic’s carrier plane, Eve. The rocket ship reached an altitude of 53.5 miles above Earth’s surface before gliding back down to land at Spaceport America .
The vehicle flew high over the New Mexico desert on Thursday to enable three Italian astronauts to conduct science experiments in weightless conditions. Sir Richard will now begin sending up the 800 or so space flight customers who’ve bought tickets to ride on Unity.
72 minute mission
The 72-minute mission took off from Spaceport America at 08:30 local time (14:30 GMT) and was livestreamed around the world.
Just under an hour into the mission, after reaching an altitude of 13,600m (44,500ft), the carrier plane, Eve, then released Unity to ignite its engine and boost up to the edge of space. At the top of its climb, the rocket ship was at an altitude of 279,00ft (85km), touching the edge of space.
Success
This successful launch marks a major milestone for Virgin Galactic and the space tourism industry as a whole. With this achievement, Virgin Galactic has joined a small club of companies that can ferry paying customers to space, including Elon Musk’s SpaceX and Jeff Bezos’s Blue Origin.
Sir Richard Branson’s Virgin Galactic has made history with its successful rocket ship launch on June 29th, 2023. This achievement marks a significant milestone for the space tourism industry and opens up new possibilities for commercial space travel in the future.
“I am enough of an artist to draw freely upon my imagination. Imagination is more important than knowledge. Knowledge is limited. Imagination encircles the world.”
Albert Einstein
Inflation in the UK is proving stubborn
UK inflation rate remains high at 8.7% in May 2023
The UK inflation rate remained at 8.7% in the year to May 2023, according to the latest official figures from the Office for National Statistics (ONS). This is the same rate that was recorded in April, but down from the 10.1% level seen in March.
The ONS said that rising prices for air travel, recreational and cultural goods and services, and second-hand cars resulted in the largest upward contributions to the annual inflation rate. However, these were offset by falling prices for motor fuel and food and non-alcoholic beverages.
The ONS also reported that core inflation, which excludes energy, food, alcohol and tobacco, rose to 7.1% in May, up from 6.8% in April, and the highest rate since March 1992.
High inflation is the fault of everyone else other than the central bank
The inflation rate is measured by the Consumer Prices Index (CPI), which tracks the changes in the cost of a basket of goods and services that are typically purchased by households. The CPIH, which includes owner occupiers’ housing costs, rose by 7.9% in the year to May, up from 7.8% in April.
The high inflation rate has been driven by a combination of factors, including supply chain disruptions, labour shortages, higher energy costs, and strong consumer demand as the economy recovers from the coronavirus pandemic.
The Bank of England has a target to keep inflation at 2%, but it has said that it expects inflation to rise further in the coming months before falling back next year. The Bank has also signalled that it may raise interest rates sooner than expected to curb inflationary pressures.
However, June’s inflation reading came in below economists expectations at 7.3% A small but welcome reversal of high UK inflation. UK inflation is higher than the EU and U.S.
Are central banks doing a good job at controlling inflation? Bear in mind the inflation target is 2%…
Oh no, not again!
UK Interest rate 5% and rising
The current interest rate in the UK is 5% as of June 2023.
This is the Bank Rate set by the Bank of England (BoE), which influences the interest rates that other banks charge borrowers and pay savers. The BoE has raised the Bank Rate 13 times in a row from 0.1% to 5% in a bid to control inflation, which is the rate at which the prices of goods and services increase over time. The BoE has a target of keeping inflation at 2%, but the current inflation rate is 8.7%, which is much higher than the target. This means that the purchasing power of money is decreasing and people have to pay more for the same things.
Summary
- The Bank of England has increased the base rate to 5% – up from 4.5% in June 2023
- It’s a bigger increase than most forecasters expected
- The last time the base rate was 5% or higher was in 2008
- Higher interest rates are intended to lower inflation, by giving mortgage-holders and consumers less to spend
- The government’s target is to have inflation down to 5% by the end of the year
- Rishi Sunak said: ‘I always said this would be hard – and clearly it’s got harder over the past few months’ – I am totally, 100%, on it, and it’s going to be OK‘
- Seven of the nine members of the bank’s committee voted for the 5% rate – two wanted no change at all
Bank of England mission statement
Promoting the good of the people of the United Kingdom by maintaining monetary and financial stability.
Well, the BoE has clearly done a good job here then with the UK interest rate now at 5%, again… and inflation at 8.7% after peaking at 11.1% in November 2022, a 41 year high! Great job!
And the UK PM said, ‘I always said this would be hard – and clearly it’s got harder over the past few months. I am totally, 100%, on it, and it’s going to be OK‘.
That’s good to know then – it’s going to be OK – so reassuring for borrowers! It’s going to be OK, so don’t worry!
Sorry PM, but that is so weak it’s bordering pathetic. Weren’t you the chancellor too?