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With inflation running at 9.4% there is no escaping the heat in the economy and it’s going to make policymakers at the Bank of England sweat.

They face the supremely tricky task of rapidly cooling down prices, without pushing growth into the deep freeze.

The economy sorely needs to be doused by a bucket of ultra cold water, but the labour market is still red hot and promises of tax cuts by Prime Ministerial contenders risk seeing prices staying elevated as demand for goods and services is kept higher.

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The likelihood is growing that this fresh scorcher of a reading will mean the Bank of England will push up rates by 0.5% at the meeting in August.

The governor of the Bank of England Andrew Bailey has reiterated that it’s inflation which is the clear and present danger facing the economy right now.

In a speech at the Mansion House last night he stressed that it would continue to be the focus and that there were no ifs and buts in the Bank’s commitment to the 2% target.

There is also growing expectation that the European central Bank will also hike rates by as much as 0.5% tomorrow to try and alleviate the Eurozone’s own inflation migraine.

The worry is that the higher borrowing costs this would bring might pile up more problems for indebted nations, like Italy, so a plan appears to be afoot to offer special support on the bond markets to ensure that fresh financial woes don’t hit.

With expectation that the Nordstream 1 pipeline will reopen on schedule after maintenance work tomorrow, it has helped ease immediate fears about a fresh energy shock with European gas prices dipping back slightly, but nations are still scrambling to ensure gas reserves are filled before an highly uncertain winter approaches.

Brent crude is hovering just under $107 after dipping slightly after three straight sessions of gains after industry data pointed to a rise in US crude inventories.

Amid hopes an immediate energy crunch will be averted European indices are expected to open in positive territory as short term relief continues to wash through the markets.

Fears of a damaging US recession have also receded a little in the rear view mirror with Wall Street closing at a three-week high following some more upbeat earnings reports.

The relief rally was prompted by a raft of higher profits from companies across a range of sectors including toy manufacturer Hasbro and oilfield services provider Halliburton.

Netflix provided some after-hours cheer, rising by 8% as fewer subscribers than expected ditched the streaming giant, but with 1 million customers signing out, it’s clear the company has its work cut out in developing new content to lure them back in and grow its base elsewhere.

Investors are clinging onto any positive news they can but the claws of the bear market have scratched deep.

There will need to be plenty more signs that a recession could be avoided and inflation is being brought under control before US indices can emerge from its clutches.

Ether is the stand out coin in the crypto world right now, and has been soaring in value as speculators bet that an operational change could see a fresh pile on.

The crypto currency has risen by 49% over the past week and is up by another 2% since yesterday.

It’s partly due to high hopes that the crypto winter could be thawing and that coins may have hit a nadir but Ether’s raced past modest gains achieved by Bitcoin.

Crypto fans have latched onto an upcoming upgrade to how Ether transactions are validated, which has been hyped as ‘The Merge’.

The network is moving to proof of stake system, which has emerged as an alternative to crypto mining, or what is known as the ‘proof of work’ process.

Instead of miners being more likely to add blocks to the blockchain if they generate more computer power, by staking, users are more likely to be randomly selected to add blocks if they lock away more currency.

The proof of stake system is viewed by some as a way the crypto world can limit its environmental footprint and burn less energy.

Crypto mining has been highly criticised for contributing to climate change due to its energy intensive nature and as wildfires rage across Europe and the United States, the promise that Ether transactions could be less damaging to the environment has caused a wave of interest.

With the rules of the future games of mining, staking and trading still pretty murky, and the value of crypto assets hugely sensitive to volatile conditions in financial markets, it’s clear investing in the crypto Wild West is still a very risky business.

Investors should only dabble at the fringes of their investments with money they have to be prepared to lose.

Commenting on inflation reaching 9.4%, Andrew Aldridge, Partner at Deepbridge Capital, said:

“With inflation reaching a 40 year high, investors and financial advisers will be scratching their heads regarding where there might be inflation-busting investment opportunities.

For long-term growth opportunities, venture capital might be an opportunity that can no longer be ignored – with unrivalled tax reliefs available via the Enterprise Investment Scheme, short-term tax planning can support longer-term growth opportunities.”

Commenting on inflation reaching 9.4%, Douglas Grant, Group CEO at Manx Financial Group PLC, said:

“Today’s unwavering rise in inflation yet again signals just how difficult the remaining half of the year is going to be.

We believe that demand for working capital, which has already reached unprecedented levels, will soar even further as more businesses desperately require liquidity provisions to counteract rising interest rates, supply chain issues, increases in wages and additional pandemic-induced headwinds.

With the cost of borrowing set to increase, many SMEs are struggling and will continue to be challenged this year.

Having successfully deployed multiple relief schemes – BBLS, CBILS and RLS – for SMEs throughout the pandemic, the UK government should, in our opinion, now turn their attention towards a permanent loan scheme to help leverage businesses going forward.

Now is a vital time for the Government to work together with traditional and alternative lenders to guarantee the future of our SMEs and to ensure the successes of these emergency schemes are not wasted.

As we look towards the post-pandemic era many SMEs are at a critical tipping point, some between failing and surviving, others between surviving and thriving.

As the government looks for ways to power the economy’s resurgence, the importance of a permanent scheme cannot be understated, it could act as the fundamental difference between make or break for many companies, and in turn, our economy.

SMEs would be well-advised to take stock of their current capital structure and if appropriate, access fixed term, fixed rate loans to prevent additional exposure to an increasingly volatile lending market.”

Susannah Streeter
Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown.
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Susannah Streeter
Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown

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