The UK has had its challenges with inflation for decades. Unlike the past, when high inflation would lead to escalating product prices, today the major worry is the low level of inflation. In late 2020, the annual inflation rate fell to 0.3 percent, its bottommost level since 1989. The occurrence led to lower commodity prices, a great reprieve in the tough COVID-19 environment.
On the flip side, these ultra-low inflation rates signal a challenging period for the economy. Central banks printed a lot of cash in 2020, to de-escalate the oncoming economic recession. The European Central Bank and US Federal Reserve debt have now grown to the $16 trillion marks. There is a possibility that this debt will go up by a further $2.8 trillion in 2021.
This setting paints a rather grim picture of savers and the economy. For this reason, more investors are learning how to trade Ethereum and other cryptocurrencies on PrimeXBT. There are growing fears that the relentless printing of cash will eventually lead to its loss of value as a medium of exchange.
Cryptocurrencies like bitcoin are the perfect hedge against inflation since their supply is limited. Bitcoin has a 21 million-supply cap that keeps it inflation-free. For this reason, large numbers of investors are purchasing this new form of digital gold as banks inject massive amounts of dollars into dysfunctional economies.
Ethereum on the other hand has a permanent token issuance schedule that dictates its supply. The amount of ether in the market will surge gradually to ensure that demand keeps ahead of supply. Consequently, unlike cash, ether is not inflationary. Its value is bound to increase over time, despite its rather flux monetary system, when compared to bitcoin.
Low Inflation Rates Have Bad Outcomes for Savers
Inflation levels affect every aspect of the economy. They dictate the price of food, mortgages, and fuel. The UK inflation figures are rising and now stand at the 0.7 percent level in the first few months of 2021.
The rising price of services and goods will determine just how far households can spread their earnings. When inflation is too high, money can only meet a fraction of a family’s needs and wants. When wages cannot match rising inflation rates, the citizen’s standard of living plummets.
Inflation Expectations in the UK
For this reason, the UK government is striving to keep its inflation rate at a minimum, just enough to encourage economic growth. The UK has an inflation rate target of 2 percent. The country is therefore still well below its desired result. As people purchase more clothing and household items past the pandemic’s rigid lockdown measures, the inflation rates have slightly risen.
At its current inflation low rate, however, the UK’s interest rates will remain ultra-low. This setting plus the Bank of England’s quantitative easing measures is increasing government debt. For this reason, the BoE could make more cuts to its interest rates.
In the aftermath of the 2009 global financial crunch, the UK’s interest rates were 5.25 percent. Continuous cuts in the last few years have driven these rates to the 0.1 percent mark. The UK could eventually face a negative interest rate, should the economy experience more turbulence. This would be the UK’s first negative interest rate environment.
This situation places savers in a difficult situation. Now, savings accounts are gaining very little interest from banks. A negative interest rate will erode the value of savings. In this instance, banks will charge savers a fee on savings. These low-interest rates are also driving asset prices through the roof. House prices are on the rise and young people are spending more to own homes.
The younger generation also is not earning much yield on their retirement savings. It, therefore, does not come as a surprise that there are millennials flocking PrimeXBT and trading cryptocurrencies. Data shows that 40 percent of young people between 18 and 34 years own at least one type of digital currency.
Virtual currencies like Bitcoin are rising in popularity as the low-interest low inflation rates further devalue the currency market. Digital currencies have become safe-haven assets, comparable to gold and other precious metals in times of economic uncertainty.