Stockmarket meltdown – but don’t panic

The worst one-day fall on the FTSE-100 since the terror attacks of September 11th have set alarm bells ringing around the world.

But what goes down does go up and after the collapse on January 22nd the FTSE has rallied thanks to the US Federal Reserve slashing American interest rates by 0.75 per cent to 3.5 per cent.

One day the UK stock market lost £80 billion dropping 5.5 per cent and the next day it’s back up by three per cent in a rollercoaster ride.

The good news is that the Bank of England is now likely to cut interest rates next month by at least 0.25 per cent to 5.25 per cent with the possibility of yet more cuts to come.

Anyone with a mortgage will heave a sigh of relief and particularly the 1.4 million people set to come to the end of fixed rate deals this year.

But what does the stock market wipeout mean for the rest of us? guides you through the ups and big downs….

What goes down

Worries about the US economy are sending stock markets into freefall with analysts predicting the States is about to go into recession.

This will have a knock-on effect on all economies worldwide – the old saying is that ‘When the US sneezes the rest of the world catches a cold".

That is because the US is a massive market for almost every country and even if countries don’t export there their other customers will suffer.

How do you lose?

Anyone who has money invested in the stock market is at risk to some extent – and millions of us will be invested without possibly knowing it.

If you have a pension then the value of your retirement pot will have fallen sharply. The FTSE-100 is down more than 20 per cent since last year and that will have hit pensions.

If you’ve got cash invested in shares or in unit trusts then again you’ll have been a loser.

However you’re only a loser if you cash in. At the moment the losses are on paper only. If you sell your shares you lose. If you hang on to them you don’t.

How do you win?

The Bank of England is likely to cut interest rates in the UK following on from December’s cut.

That will make borrowing cheaper with mortgage customers the biggest winners particularly those on discount or tracker rates.

Even people coming to the end of fixed rates will do well. Those who fixed deals in 2004/2005 got rates of around 4.5 per cent or 5 per cent. When rates were higher they were heading for more expensive deals. Now they’re not.

But don’t take the rate cuts as a cue to borrow more. Banks are still getting tough with borrowers so now is the time to get your borrowing under control.

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