Goodbye to Cheap Money… For Now.

With rising inflation causing interest rates to follow, for many people borrowing money has never been so expensive.

However, it is worth looking back further than recent memory to get some perspective and reassurance from the past.

For the past decade, it has never been so cheap to borrow money. Due to the response to the COVID-19 pandemic, the Bank of England cut interest rates to an all-time low of 0.1%, but even putting that extraordinary moment to one side, there is a whole adult generation (arguably two) that has never known high-interest rates, so we should temper any panic with a look back in history.

The war between Russia and Ukraine impacted the financial markets before anyone had a chance to recover from the economic and logistical impact of COVID. With rising food prices, energy bills and the Bank of England forced to intervene because of proclamations from a new UK government, financial institutions are being more careful about lending money.

If a bank’s money and assets decrease in value, and it is nervous about covering its operations, it will inevitably charge more to lend out what it has, hence the rise in interest rates that affect people in their everyday lives, but was this part of the financial cycle already overdue?

I, along with a lot of my financial adviser colleagues, spend a lot of time reading industry journals, listening to interviews and podcasts, and proactively studying economic developments, unlike the media, with the long-term picture in mind.

Since the time of their invention, financial markets and national economies have been cyclical with ups and downs, growth and decline, prosperity, and difficulty. It is amazing that UK interest rates have stayed as low for as long as they have, but that is a whole other topic.

Could anyone have foreseen a global pandemic and war? No. Did an interest rate rise have to happen like this? No. But did it have to happen Many experts say Yes. The point I would make is that this is temporary.

How long it will last, I don’t think anyone really knows, and hopefully, it will be a short-term situation, but things will grow again, and good financial plans act as bridges to get people to the other side. 

SJP Approved 08/11/2022