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Winds Blowing In Many Directions in the UK Financial Markets

by Jim ONeil on February 9, 2011

in Personal Finance News

Small investors are known for entering the market just before the bubble bursts. During the latest run, they seem to have been wiser. Seeking relief from low savings account interest rates, private investors made £7.5 billion in net investments during 2010. This was the fastest rate of purchase during the last 100 years, edging past the 2009 figure of £7.3 billion.

The fact that share prices increased after many 2010 investments were made resulted in some attractive returns. The only gray cloud is the December 2010 figure, £1.72 billion net. This is the highest for any month since April 2000, the peak of the dotcom boom.

Though the market is not poised to peak, there is downside risk in drifting shares. As a precautionary measure, it is wise to invest only in dividend shares.

Last week, credit card interest rates reached the highest level in 13 years. On average, borrowers are paying close to 19 percent interest annually. This provides credence to the argument that the base

interest rate should not be raised by the Bank of England. Any increase in the base rate would cause credit card interest rates to increase even more.

The irony of the situation is that lenders increased their rates because they believe people will have difficulty paying off balances due to decreasing standards of living and increasing unemployment. By doing so, they increased the chance of default. They then used this situation to justify the rate increases.

Consumers are getting wise and decreasing their outstanding balances. As debt contracts, credit card companies make up for their revenue losses by further increasing interest rates. This will continue despite any move in the base rate by the Bank of England. This whole cycle shortens the timeframe until the day the government is able to cash in the consumer share within the banking sector.

Quite Rightly

By messing with BP, they are also causing considerable disruption in the UK financial markets. Haven't quite figured that one out yet, but I can think of a coupple of ways a really cynical actor could put that to advantage.

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