Beijing is reaching the end of a credit cycle. It had previously managed to inflate domestic growth rate, during the global financial crisis, by forcing banks to expend huge amounts of credit to property companies. This was one of the largest explosions of borrowing and investment spending ever seen in a single country. It is currently feared that continuing with such methods and increasing levels of debt may trigger a financial collapse. The government is, therefore, seeking to slow the pace of credit and investment growth and facilitate a move to other areas such as consumer spending to fuel growth. As they attempt this, the overall economic growth in China is invariably slowing causing a fall in Chinese stock prices. This, in turn, has had an impact on global stock exchanges and economies.
The CBI is estimating that there will be 2.6% growth in UK GDP. Over the past weeks, however, the UK FTSE100 index has seen a sharp fall in share prices. On Black Monday alone it was estimated that £104 billion in value was lost in a single day. This is due to the fact that many of the companies listed on the FTSE100 are global companies linked to the success of the world economy rather than that of the UK alone.
The slowdown in China will reduce global demand for oil. At the same time, oil production is expected to increase in the USA and Iran following Tehran’s nuclear deal with the US. This, in turn, has caused a fall in the price of oil which has had an additional detriment to stock markets worldwide as the share price of oil companies fall. Consequently, anyone who has a pension invested in the stock market will have seen a reduction in the value of their fund. This will have a more damaging effect on those who are close to retirement who may have already considered having their portfolios moved into cash or bonds.
Finally, many experts believe that the Bank of England may delay plans to raise interest rates in the UK until at least 2017.
Should your finances or those of your business be affected by these events then it is important to seek professional financial advice in order to consider the range of options available and thus mitigate negative effects. One of our experienced practitioners would be more than happy to arrange a meeting, initially free of charge. To get in touch please contact us here.