After a very turbulent week financial markets bounced back yesterday as illustrated by the gain of around 4% by the FTSE 100.  More encouraging is today’s calm as the same markets have held onto those gains.

The reason behind both this week’s gains and the previous weeks turbulence lies with the politicians as they struggle to deal with the Eurozone debt mountain.

Procrastination by politicians on all sides of the Atlantic has led to the crisis being deferred for a few weeks at a time.  Inevitably this has led to the worldwide financial markets losing confidence in both politicians and Eurozone finance leaders.  The worry is those same politicians and leaders haven’t grasped both the enormity and complexity  of the situation and that they are unable to come up with a credible long term plan to deal with the debt.

In light of this, and last week’s falls in the stock markets, the Eurozone leaders sent out reassurances that they are now putting together some long term plans.  This news alone was enough to lift markets.

As a sign that they are looking to the long term European Commission President Jose Manuel Barrosa today announced a new transactional tax on banks and the ultimate introduction of ‘Eurobonds’. 

It is good news that the EC is looking ahead and starting to put together long term plans.  That said, the Bank Tax needs to be adopted worldwide in order for it to work.  In its current state the UK would veto any such taxation policy. 

The Bank Tax as outlined would devastate the UK as around 80% of the tax raised would be taken from UK banks.  Ultimately this would cause all our banks to move overseas to cheaper locations.

In summary the bounce in markets is welcome news.  Whilst I am sure there will be further drops in financial markets in the weeks ahead it is good to see the political leaders looking beyond any temporary shoring up of the system.  I feel confident that financial markets will respond favourably as long term plans are put into place.

 

Like several of our clients we have decided to embrace the latest technology to help reduce our carbon footprint.

As part of this we are looking forward to the installation of Solar panels at the office this week. At the same time we are continuing our policy of upgrading and replacing the office lighting with low energy LED lights.

Whilst both of these technologies should reduce our carbon footprint, the long term goal is to be self-funding, and ultimately profit generating although only the future will tell.

 

Iain Duncan Smith, in his role as Work & Pensions Secretary, has confirmed the State Pension Age will have to increase sooner than currently planned.

The previous government brought in the changes to the state pension age and as it stands at the moment the retirement age for both Men and Women increases to age 66 in 2020, age 67 in 2036 and age 68 in 2046.

Quoting the increasing life expectancies and the increasing retired population, which will be further inflated by the ‘baby boom’ generation, Mr Duncan Smith stated that the age 67 increase will have to be brought forward by 10 years.

By implication we can assume the state pension age will be age 66 from 2020, age 67 from 2026 and age 68 from 2036.

That said these dates have yet to be confirmed and there is some hope for Women impacted by the retirement age increase to age 66.  The government has stated it will look at transitional arrangements for Women who have been affected by both the equalisation of state pensions to age 65 in 2018 and the further increase to age 66 two years later.

 Although the UK property market remains sluggish, conditions have eased slightly for potential borrowers. 

 

According to figures from price comparison website Moneyfacts, the number of available mortgage deals has risen to reach its highest level since December 2008.  Lenders are now competing for mortgage business; this has led to a welcome decline in mortgage rates, and average rates for fixed and tracker mortgages have reached their lowest level since 1988.

The rates on offer closely follow the Bank of England's base rate, and more importantly they are often dependent upon the overall economic outlook and the dialogue provided by Mervyn King in his role as the Governor of the Bank of England.

 

Mr King’s most recent comments echoed those of the US and European monetary leaders as he gave every indication that the very low interest rates are likely to remain as they are for some time. 

 

These statements had an immediate impact in the mortgage arena, as lenders seem to anticipate the current interest rates remaining low for at least another 12 or 18 months.  Longer term fixed rates have been cut with one lender offering rates of around 3.5%pa for 4 years for some borrowers.

 

In short, whilst the economic news may appear bleak, there is good news for home owners as the savings on borrowing costs continue to benefit their pockets and hopefully mitigate the rising costs of living including gas and electricity.