While the financial market in the UK is amongst the most developed of any country in the world, there are still only a handful of factors which can really impact upon UK rates of interest, UK rates of return and UK base rates. However, this small band of factors can often have a massive influence over the direction of the economy , stock market and returns available in the UK.

Money Markets
As we have seen over the last few months, in the aftermath of the US sub-prime market fallout, the world wide money markets can have a massive impact upon the cost of borrowing for both private individuals and businesses. As the sub-prime situation in the US continued to deteriorate we saw the start of what has become a long and prolonged credit crunch. But what is actually happening?

As the debt crisis in the US worsened we saw many companies pulling in their liquidity (i.e. “free money”) which they would normally have made available to the world wide money markets – the markets which allow companies to borrow money overnight, short term, medium term and longer term at a cost. As debt instruments which had been created using an array of debt exposure began to unravel (with many ending up virtually worthless) we saw the asset base of many companies shrink substantially. A trickle of reduced liquidity soon turned into a flood and before long we saw borrowing rates rise sharply due to a lack of “liquidity” in the markets – i.e. fewer people willing to lend money, which meant more risk to those staying in the market. This increased risk led to the need for a greater return to offset the added risk, hence the sharp rise in borrowing costs. How does this affect the economy?

The expansion, and often day to day running of many businesses, is highly dependant on the cost of financing such actions. As finance costs began to rise many companies were forced to cut back on their investment programs and look to make savings elsewhere – with job cuts the only option for many. As each cost saving exercise was announced, each redundancy meant less money for the UK retail sector which is now leading to a slow down in the UK economy. Indeed UK money market borrowing rates are still higher than UK bases rates (which are governed by the Bank of England) leading to central banks around the world looking to inject liquidity into the markets to bring money market rates more into line. This situation cannot go on forever and many central banks have taken the decision to let the market suffer some pain from “the over exuberances” of the past, in the hope that it will teach them a lesson to be more careful – whether this message hits home remains to be seen.

Inflation is a very difficult beast to control and very often just at that moment when you think it is under control it can roar back into life. Inflation is effectively the ongoing change in the price of an item, although the UK rate of inflation is calculated using the price of a “basket” of goods which reflect everyday life, including a TV, Car, Petrol, etc, etc. Even though many people will have you believe that any inflation is bad for the economy, this is not correct, and there needs to be a balance between the rate of inflation and the amount of income each adult person in the UK receives.

To give an example, if the general rate of inflation was 5% per annum, you would expect your cost of living to rise by 5%, but if your income only rose by lets say 2% then your cost of living has increased by a net 3% over and above the rise in your income. In other words you would not be able to live the lifestyle you had been living and there would be a need to cut your expenditure. A cut in expenditure by everyone in the UK (no matter how small) would filter through to the economy at some stage and we would see a reduction in retail sales. As retail sales become more competitive many retailers would be forced to lower their prices to attract the shrinking pool of money at the consumer’s disposal.

This reduction in prices would reduce both corporate income and profitability and eventually lead to more cost cuts – i.e. job losses, which would then lead to weaker consumer spending, and around we go again. This downwards pressure can often be difficult to turn around and does cause tensions between the government and the public sector, with the government looking to reign in short term spending by reducing wage rises, which would in turn bring down the general rate of inflation (i.e. the cost of the basket of goods used to measure inflation).

In summary borrowing rates and the rate of inflation have a major impact upon the economy of any country in the world. A lacklustre economy can wreck the mortgage loans market, kill the opportunity to refinance second mortgages and eliminate any chances for those looking to refinancing with poor credit ratings. It takes careful managing of the economy by the respective governments to ensure both over exuberance and high inflation periods are short lived and the economy returns to a long term steady growth pattern – easier said than done!

Ever since the early days of the internet there has been intense pressure on companies to move online to both save on operational costs and give their clients access 24 hours a day 7 days a week. But what areas of finance has the internet touched, and what exactly are the benefits?

While it would take forever to list all of the areas of finance which the internet has touched, we hereby list a few areas which seem to have benefitted:-

Online share trading services have become something of a necessity for many investors, not only offering the chance to trade online but also check the latest prices (real time), news and the value of their portfolios. Rather than call your broker for a chat and possibly miss out on the price in the market, you can trade “at the price” or place any amount of limit trades to fill your order.

We have also seen a major move towards commodity forex online trading, which again has increased the speed at which trades and information can be passed and transacted. In markets where time is of the essence, the ability to trade there and then, as well as having the latest information available, is a god send. Many people would find it almost archaic to return to the systems of yesteryear, the delays and the slow circulation of information.

There appear to be a couple of real benefits from the rise of online personal financial services, which include the ability to check the position of your finances 24 hours a day 7 days a week from the comfort of your own home. No trip to the nearest bank in the pouring rain, no waiting in massive queues, simply switch on and log in whenever you want. So whether you are looking at online credit card processing or the balance of your online savings account, it is there whenever you want it, day or night.

However, there is also another service which has proved very popular since the internet online revolution came into force, your very own free credit report online. Many people are using these services to ensure that their credit ratings are in order before actually applying for credit of any sort. There is nothing worse than being turned down for a bad credit report, something which can often be very embarrassing.

The area of new business and the internet very much go hand in hand, offering entrepreneurs the chance to hit a worldwide market from day one. However, while some would have you believe that kids make money online, it is not quite as simple as that – although there have been numerous examples of kids hitting the big time with new and exciting business ideas!

There are many eBooks and sites telling you “how to make money fast online” and while many of them do have some very good points and can be very useful, there is a lot of sub-standard advice out there, just waiting for your money. Don’t always go for the cheapest advice or eBook, because if you are looking to earn easy money online you may well be disappointed. While many have made a short term splash in the online community and maybe banked a fair amount of cash, it is the long term income streams which will give you a steady foundation from which to build for the future.

While the so called “payday loan” establishments have been around for some time it is only since the introduction of the internet that these businesses have been able to expand their wings and bring in more customers. Online payday loans are simple transactions whereby you lend money from a regulated company prior to your pay cheque clearing. The company will charge you a commission for this, but for many people struggling for money this is a very small price to pay.

Payday loan companies are very easy to set up, and while the commissions are not massive on individual transactions, a slow build up of capital behind your business will allow you to constantly build your client base, and income, with very little risk. Where there is a service required, whether this is lending money for a week, a month of even just for a day, there will be someone somewhere offering something to suit your needs.

There will be many business people who will tell you that online money making opportunities are few and far between, when in reality this is just not true. There are many ideas out there which have not been handled correctly and even business ideas which have not yet been discovered. In the end it all comes down to your application and your will to win.

The “comparison” sites are a prime example of an industry which has really taken off over the last 10 years. Whether you are looking for the best rate on your mortgage, your savings account or insurance, there are many sites willing to take away the task of checking the whole market (something which is often not possible for the general consumer). The beauty is that these sites can often build up strong relationships with an array of financial service providers allowing their customers to benefit from improved terms.

The days of a trip down to your local bank or insurance agent are in the past for many (but still available for those who do not feel uncomfortable working online) and the 24 hour financial world is most definitely here to stay. While there have been a small number of instances of security issues with online services, these are really few and far between, indeed offline security issues are still the biggest danger to the consumer.

The financial world has changed drastically over the last few years, and while the changes are still “work in progress” with new services being introduced on a regular basis, there are still great opportunities to make money on the internet online, if you have a good idea, focus and an ability to attract the masses.