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- Today's business and finance round up 20th May 2021
Today's business and finance round up 20th May 2021
Today's issue - 📊UK inflation on the rise
20th May 2021
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Today's stories
UK inflation on the rise
Bitcoin hit by China crackdown
Yesterday's market moves
FTSE 100 -1.2% 6,950 FTSE 250 -0.4% 22,235
Inflation fears reared their head again after the latest UK data showed there is growing price pressure in the economy (more below). Investors are worried that rising prices could derail the economic recovery. The FTSE 100 closed down 1.2%, falling below the magic 7,000 figure, while the FTSE 250 was 0.4% lower.
UK inflation on the rise
What’s going on
Official data shows that inflation in the UK doubled to 1.5% in the 12 months to April from 0.7% in March.
Higher energy and clothes prices were the main drivers behind the increase.
Why is this important
For a good part of 2020 we were in lockdown, unable to do our usual leisure activities of shopping and travelling. This meant demand for consumer goods and fuel went down, so for much of last year inflation was below 1%.
As lockdown restrictions lift it’s to be expected that demand for those goods would return as the economy reopens and so prices would go up. Inflation data from the US, Europe and China have also shown similar trends in the past few months as they have reopened.
The Bank of England have a target inflation rate of 2% so we’re still some way below this. However as normality returns they expect inflation to go above the target by the end of this year.
If this happens then the Bank could increase interest rates to bring it back down. Higher interest rates generally make stocks less attractive than cash or bonds, that’s why inflation news tends to spook stock markets.
Takeaway
At current levels, inflation is nothing to get to concerned about. A little bit of rising prices is actually a sign of a growing economy.
Some analysts have voiced fears that inflation will escalate as consumers get back to spending with an estimated £150bn of savings built up over the last 14 months.
But the Bank of England and the Federal Reserve in the US are doing their best to calm those fears. They say that inflation this year will be temporary and that they will prioritise economic recovery before increasing interest rates.
Bitcoin hit by China crackdown
Not many currencies can be moved by Elon Musk tweets and statements from the Chinese government but Bitcoin is no ordinary currency.
In the latest instalment of the rollercoaster that is crypto, China’s central bank announced that cryptocurrencies should not be accepted as payment and did not constitute real currency.
Bitcoin then dropped in value by over 30% to nearly $30,000, after being close to $64,000 just last month. Other popular cryptocurrencies like Ethereum and Dogecoin also suffered losses.
This comes less than a week after Tesla CEO Elon Musk announced that the electric car company would no longer accept Bitcoin as payment due to environmental concerns.
Bitcoin may be increasingly popular with Millennial and Gen Z investors but the events of the past few weeks raises more doubt over its long term adoption by wider society.
Also a currency that can move with a single tweet from Elon Musk has given further ammunition to critics who say cryptocurrencies are too volatile, and have no intrinsic value.
Covid-19 Vaccine Update
In the past 24 hours 174k UK adults have had their first dose and 324k have had the second dose.
This means 70.2% of UK adults have had at least one dose of a vaccine, 39.6% of adults have had two doses.
Other stories to keep you in the loop
Stat of the day
74% of Britons say the risk and uncertainty exposed by Covid has made them want to save more after the pandemic