UK: high inflation and investors bet interest rates will soar to 25 year high. And listen to the podcast with Eva Pascoe about CBDCs
Welcome to our #188 weekly newsletter.
“For women taking control of their financial future”
-Jana Hlistova
From The Purse
In this week’s newsletter, we focus on the stubbornly high inflation in the UK and investors now betting on the base rate rising to 6.25% by early next year.
Unlike all other G7 countries, UK inflation has not dropped according to expectations. But the UK has had to contend with the fallout from Brexit including high food import prices from the EU.
And don’t forget to listen to The Purse Podcast interview with Eva Pascoe, a digital leader who has pioneered the Internet, e-payments, ecommerce fashion solutions and CRM and is the co-founder of a digital think-tank called CyberSalon.
We talk about the future of money: central bank digital currencies (CBDCs), crypto and why financial innovation is key. Please enjoy!
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And you can review the news in brief so you stay on top of global financial, economic and investing trends.
I hope you enjoy this week’s newsletter.
Until next week,
Jana
UK: high inflation and investors bet interest rates will soar to 25 year high
The Bank of England has increased the base rate by 0.5% to 5%, and investors expect more hikes.
Investors are now expecting that UK interest rates will soar as high as 6.25% -the highest level since 1998-by early next year, as reported by the Financial Times.
On Thursday, the Bank of England (BoE) increased the base rate by 0.5%, from 4.5% to 5%, following figures which showed that UK inflation remains stubbornly high at 8.7%.
Analysts now expect the BoE to continue hiking interest rates, potentially at 0.5% increments, until inflation or the labour market falls significantly.
Official figures had expected to show UK’s consumer prices index (CPI) ease in May to 8.4%. But unlike almost everywhere else in the world, that didn’t happen.
As recently as March, Goldman Sachs was predicting inflation to drop during the summer and autumn to below 2% by the end of 2023.
The majority view was that once it was clear Europe’s major economies could cope without Russian gas and wholesale gas prices had slumped, every G7 country would enjoy an inflation dividend, as per The Guardian.
In the US, the inflation rate has dropped to 4% from a peak of 9.1% last summer due to the impact of falling energy prices.
And in the eurozone, average inflation has dropped more than expected, from 7% to 6.1%.
But what sets the UK apart is:
A jobs market that is struggling to recover from the Covid-19 pandemic
Brexit visa rules
The decision by many older workers to quit the employment scene.
The UK also imports more than 50% of its food, mostly from the EU, which has proved to be badly affected by rising raw materials costs.
Importantly: food prices have risen at more than 18% for most of the year, pushing the overall UK inflation rate above those of rival economies.
Moreover, the market’s expectation for higher rates has not come with a strengthening of sterling, which implies the markets thinks that we are headed for a ‘crash’ of some kind.
Further sterling weakness, which drives up the cost of imported goods, could further compound inflation.
Meanwhile some homeowners will be faced with paying an extra £5000+ per year on their mortgage, far in excess of the extra energy costs they faced.
Check out these resources for help:
News in Brief
Financial news
The Buffett crash indicator is sounding the alarm again after stocks have soared too much this year. Global stocks are now worth more than the global GDP.
India’s stock market spikes as investors increasingly embrace the narrative that the country is set to overtake China as the world’s economic growth engine.
UK inflation stays stuck at 8.7% while economists had expected a decline to 8.4%. While the rate has fallen from its October peak of 11.1%, the figure for May remains stubbornly high.
The Bank of England on Thursday lifted its benchmark borrowing rate by 0.5 percentage points to 5%. Investors are now betting that UK interest rates will climb as high as 6.25%.
Goldman joins Wall St banks in cutting China’s growth outlook as post-Covid bounce fades. Goldman Sachs cut its 2023 GDP forecast from 6% to 5.4%, citing a slew of macroecon issues. Latest Goldman revision follows likes of UBS, BofA, JPMorgan, & Nomura.
Crypto: bitcoin, ethereum, DeFi & NFTs
Bitcoin (BTC) and Ethereum (ETC) both surged this week. The world’s biggest cryptocurrency shot up 18%+ past $31,000+, while the biggest runner up rallied 12.7% to trade at $1,893 at the start of the weekend.
Bitcoin jumps >$30k on speculation BlackRock ‘may know something.’ Last week, BlackRock submitted an application for a spot Bitcoin ETF, which would track Bitcoin’s underlying market price.
The venture capital fund Valkyrie Fund filed for a Bitcoin spot ETF on June 21 after BlackRock, adding the potential ETF to its existing roster of a Bitcoin Strategy ETF and a Bitcoin Miners ETF. Invesco and WisdomTree also submitted filings for Bitcoin-tied products in the same week.
Unofficial BlackRock 'EtherRock' NFTs net $750,000 in trading volume. An NFT collection has been set up combining the successful EtherRock NFT collection with the unofficial branding of investment giant BlackRock.
JP Morgan activates euro payment settlement with its JPM coin. Four years in, the financial giant's JPM Coin has been used internally to settle about $300 billion in payments.
In the UK, a central bank digital currency (CBDC) trial project backed by the Bank of England published its findings, concluding that a centrally-issued sterling-pegged digital currency could “enable a robust ecosystem to foster innovation, and to help meet the future needs of a more digitalised society.”
IMF says banning crypto assets may not be effective long-term. The IMF’s latest stance contrasts a statement in February in which some of its directors said that “outright bans should not be ruled out.”
The Purse Podcast
We cover the following in our conversation:
The future of money
What are CBCDs? How does this differ to cryptocurrencies?
Why is government, around the world, looking into CBDCs?
What are the issues vs the benefits?
Plans to introduce the digital pound.
A multi-currency world: can CBDCs and crypto co-exist?
London: the emerging crypto hub
Where will CBDCs and the crypto market be in 5-7 years?
Please enjoy! Listen on Apple Podcasts and Spotify+
Coffee Break? Read This
UK women ‘twice as likely to miss out on pensions auto-enrolment’
‘I started to unravel’: Why do so many women over 40 struggle with stress?
We’d love to hear from you. Get in touch with Jana via the The Purse website or tweet @jointhepurse and janicka.
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