There are many events around the world that can impact the UK financial landscape, and unfortunately, conflict in other countries can be among them. With the current Middle East conflict being new and uncertain, it is only natural for households to wonder how it will affect financial elements, from petrol and food prices to mortgage rates and investments.
While no one knows for certain what will happen, what does it mean for the UK’s economy right now? We explore further below.
What’s Happened So Far?
Even though we’re only days into the conflict, we have already seen an impact on the financial landscape in the UK. There have been news articles discussing how oil and gas prices are affecting prices, with some sources suggesting people should fill up on petrol sooner rather than later. While this can be put down to reactive scaremongering, especially within the mainstream media, there has already been a change in aspects such as fixed rates.
How it works is that the current situation affects volatile markets, such as the stock exchange. These market movements happen when experts across the world try to predict what will happen next, whether that’s an immediate ceasefire or for the conflict to continue for some time. This change pushes the rate down worldwide, reducing investment, which raises the swap rate. It’s all interconnected worldwide. During this period, there will be more borrowing, which will cost lenders more and, in turn, affect what they can and will borrow (also known as the swap rate).
Why is this the case? During times of conflict, lenders face higher borrowing costs, which affects swap rates. We’ve already seen that the swap rate for a 2-year term has increased to 3.59% from 3.3%.
What May Happen?
We recently reported that the Bank of England base rate is now down to 3.75% and that there was evidence that it would fall further. However, this is now highly unlikely to happen. The good news is the base rate isn’t expected to increase, but it isn’t expected to decrease further either. We may see the rate remain stable and steady. There will be a cautious approach by the Bank of England for the next few months, with further meetings happening on the 19th March and the 30th April.
We may also see the popularity of fixed rate mortgages drop. In contrast, tracker mortgages may become more preferred, as it is unclear how the rates will be affected over time. It would mean that people may not be stuck on one rate, should the tracker decrease in rate or the rates of fixed and tracker start to line up with each other.
Time to Consider Remortgaging Options
It’s early days to predict how the conflict will continue to affect the global economy, but with fixed rates and tracker rates fluctuating, if you are due to remortgage, it is a good time to lock into a fixed rate price. Locking into a fixed rate now doesn’t necessarily mean you have to stick with that rate if you are due to remortgage in a few months’ time. As the conflict either comes to a head or rumbles on, you can assess further down the line, knowing that the fixed rate price you’ve agreed upon now will be safe should things increase drastically.
Try to Keep Panic at Bay
What is truly important to remember at this time is that no one knows how this conflict will affect the global economy, so it is advised not to react impulsively out of fear-mongering and panic.
Our team will assess the next Bank of England update and be on hand to discuss the changes.
