The value of pound is plummeting constantly. How does this affect investors, business owners and the everyday life? Korosh Farazad explains the current market and what is happening with the FTSE share prices.
Currently, due to the Prime Minister and Chancellor’s reversal on the tax cut regime, there’s a massive uncertainty in the market, predominantly in the UK market. This, teamed with the interest rate hike, means that the pound is plummeting constantly, on a day-to-day basis.
The value of the pound impacts everyone from investors to business owners and the everyday. The reason for this is because when the pound is not worth as much, the cost bringing goods back into the UK increases.
For example:
● Gas - the price is largely based on the dollar
● Petrol - oil is priced in dollars, so a weak pound will mean filling up your vehicle is more expensive
● Food prices - the UK imports 46% of the food it consumes
● Technology - like computers, laptops, appliances or cars made abroad, can become more expensive
The uncertainty in the market is causing more uncertainty in consumer sales, consumer production and all the relevant criterias that go into the macroeconomics of businesses.
With the interest rate hikes and the plummeting of the sterling versus the dollar, comes a devaluation of bonds and that’s where the FTSE starts tanking. The Bank of England has increased interest rates to 2.25% for the seventh consecutive time since December 2021 in an effort to tame runaway inflation that has been causing this cost of living crisis. Of course, by doing this it has increased the mortgage costs of around two million homeowners almost immediately which again hasn’t helped the value of the pound.
"The biggest takeaway from this is that now is a fantastic time and opportunity to buy shares with the prices being so low, as long as you have the spare capital to invest, and the stomach to wait for those prices to creep back up again."
Currently we’re seeing all the FTSE 100 companies experiencing a negative impact from investor’s jitters. What that means is investors are losing their confidence in the market and are going into a massive selling spree. When this happens, that’s when there is a devaluation of those companies.
Until the time that there is a correction in the market - which we don’t believe will be until at least another 8-12 months - we will start gradually seeing some potential upside into all of the macro shocks that the UK is currently challenged with.
The biggest takeaway from this is that now is a fantastic time and opportunity to buy shares with the prices being so low, as long as you have the spare capital to invest, and the stomach to wait for those prices to creep back up again. Buying whilst stock prices are low means you get more for your money and the value of your investments will rise when markets begin to take a more positive outlook and pick back up again.
Looking at the index overall, it is trading around 7,005 points which is down by 1.45% following the start of the pandemic in 2020. However, speaking more generally, the FTSE 100 has been performing well and steadily increasing since that time and is actually trading at the same levels it was pre-pandemic. With this in mind, this would give the impression that the largest companies in the UK are continuing to perform well and are managing the cost of living crisis pretty well, giving hope for the future.