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MONEY MATTERS


INTEREST RATE SPECULATION RIFE AS UK DATA IMPROVES


TRACKER LOANS


The most obvious impact will be felt by businesses that are repaying tracker loans.


As the base rate rises, so will the repayments and those who have enjoyed record low interest rates since the crash will need to plan ahead.


FURTHER IMPLICATIONS


But there are further implications of higher interest rates that will echo across the wider financial markets. The UK bond value will fall as the real term yield decreases, while the value of the Pound will increase as higher interest rates mean better investment opportunities.


As a result, speculation over the ‘will they and when’ interest rate question is driving currency markets and will continue to do so for the remainder of the year.


NOT JUST PMI DATA


There are more elements to the equation than just PMI data, of course. Carney has actually said that employment data will be the key driver of interest rate moves, along with wider economic health. Nevertheless, an improved set of PMI data, if sustained, will undoubtedly bring with it improved employment data down the line and investors are making their bets now.


MIXED FORTUNES


This is welcome news for UK importers who will see their goods become cheaper if the Pound continues to rise. Exporters however, will feel the pinch - particularly those with outstanding bank loans.


UK PMI (Purchasing Managers’ Indexes) data was released recently and has given an extremely positive view of the UK economy, stimulating debate over the future of UK interest rates.


MONTHLY SURVEY – GOOD NEWS!? PMI readings are provided by Markit Economics and the CIPS who together conduct a monthly survey of a selected group of company’s purchasing managers. These managers are asked to give an account of purchasing patterns over the previous month and these figures are compiled to give a reading for the manufacturing, construction and services sectors.


This gives an account of the economic health of the country and recently all three sectors heavily surpassed expectations.


BANK OF ENGLAND REACTION This is great news for UK plc and for the government in particular, who will claim that their economic policies are working. Sitting in the shadows of the political debate however are the BoE and their Governor, Mark Carney, who is watching all UK data releases vigilantly.


Carney made clear some time ago that a significant improvement in economic data would lead to an increased likelihood of an interest rate hike – a move that will undoubtedly affect every business in the country.


HEDGING TOOLS CAN BE BENEFICIAL Hedging tools exist that offer protection from sudden moves in both interest rates and currency markets, and while there is a lot of bad press surrounding interest rate hedging at the moment with the recent miss-selling scandal, the right product can be very beneficial.


Whether you want to hedge or not, it would be wise to look in detail at the potential implications of interest rises in the UK. They may be some time away, but they are coming…and we all know how quickly a year goes by.


Global Reach Partners


104


www.windenergynetwork.co.uk


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