Friday 9th March

Top money stories - 5 ~ 9 March 2007

Top Tip: The sun is shining, spring is in the air and British summertime is just around the corner. It’s time to emerge from the wind and rain of winter and venture outdoors for an alfresco picnic lunch. By taking a packed lunch into work each day you could easily save yourself over £500 a year (1). That’s a holiday in the sun . . . . . .

Monday 5th March

Stockmarket Chaos

A bad start to the week for shareholders as stock exchanges around the world fell in value amidst bouts of selling. The Hong Kong Stock Exchange fell in value by 4%, the FTSE Eurofirst 300 index by 1.2% and the S&P 500 by 0.4%.

This fall in value of the world’s major stock exchanges demonstrates the danger of investing all your savings in one type of asset (i.e. shares). An investor who had bought only shares, albeit shares in companies in very different parts of the world, would have made serious losses on Monday. In contrast, someone who had invested their savings in a mixture of shares, bonds and property would have been in a better position. Although their shares might have fallen in value, as their bonds and property investments would not have done, their savings would have fallen less in value overall. It’s all about spreading the risk.

Click here for more information on the basics of savings!

Wednesday 7th March

Minimum Wage to Rise Less Than Average Earnings

Good news for the 1 million workers receiving the minimum wage this week, as the government announced that it will increase the minimum wage by 3.2% this year to £5.52 an hour (from October). This represents a rise above the rate of inflation, and hence an increase in purchasing power – what you can buy with your income.

However, this 3.2% rise is less than the 3.7% increase expected in average earnings. This will be the first time since 2002 that the minimum wage has risen less than average incomes.

So why has this happened? The government have justified this decision with reference to the strong inflationary pressures building in the UK economy. A significant rise in the minimum wage would impose an additional cost on businesses, which they would be likely to cover by increasing their prices, leading to inflation. Thus the government’s decision has been backed by the Commission for Business Interest.

On the other hand, raising the minimum wage by less than the increase expected in average incomes is likely to increase the gap between those who earn the minimum wage and those who did not, leading to greater wealth inequality.

Thursday 8th March 8th

Interest Rates on Hold:

The Monetary Policy Committee declined to raise interest rates further on Thursday, voting instead to hold rates at 5.25%. Thus the cost of borrowing throughout the UK will remain constant over the next quarter. So those who have taken out mortgages or loans should not see the cost of their repayments increase over this period.

This does not mean that the cost of borrowing will not rise further. The MPC may have stalled interest rates this month, possibly to give the recent interest rate rises time to bite, but analysts predict that interest rates will rise again before the summer. So if you’re considering taking on extra debt, think twice before you borrow, as it could become even more expensive. Or if you do decide to take on further debt, make sure you would be able to make the repayments if interest rates were to increase by another 0.25%.

Property Prices: The only way is up…for now!

The average price of a home in the UK rose to £192,233 last month, according to data released by Halifax. House prices rose 1.8% between January and February, despite the fact that analysts had only predicted a 0.5% rise over this period, indicating that the recent rises in interest rates, increasing the cost of monthly mortgage repayments and thereby effectively making the cost of buying a home more expensive have thus far failed to dampen property prices.

Friday 9th March

Regional Housing Markets

The FT’s House Price Index published on Friday reveals a marked discrepancy in regional house prices. House prices in East Anglia, the East Midlands and the West Midlands are currently rising at 4% a year, whereas prices in London and the South West are rising at 12%. The FT Index estimates the overall annual rate of house price inflation at 7.5% this year, far above the rate of wage inflation. The implication of this? Buying a home will take up an increasing share of your income so think carefully about how much you can afford to borrow.

Click here for more information on mortgages.

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1.If you spent £4 on lunch out each day but only £7.50 on food to make sandwiches for a week.

Prepared by Adela Read for MoneyBasics