The Commodities Boom

Oil prices have been uncharacteristic across the price board over the past 12 months. Reaching an all time high of over $100 per barrel in early 2008, and then dropping sharply within a few short months later to $35 per barrel, the effect has certainly been felt within other financial markets.

When the price of oil was on the rise, other common household items also skyrocketed. Ordinary families faced harsh financial decisions on a day to day basis – food or petrol? And with the rising costs of fuel, even the price of food hit a high point, causing significant pinches in wallets around the region. While oil is not the only commodity affecting the regional market, it has had the most profound impact.

The Housing Bubble

While many home owners have been leveraging and capitalizing on the rising and even booming housing market, some economists are pointing fingers at this housing phenomenon for the current financial crisis. Housing throughout the U.K. has experienced a rise in value. In fact, the rise in real estate value over the past 10 years has been the greatest rise in history within the region. And while rising housing values can provide a variety of benefits for individuals and investors, they typically are followed by an equally sharp decline in value. And, when housing values crash, many property owners are left with negative equity.

Rising Inflation

While the commodities market has been all of the matt and the housing market was blowing bubbles, inflation has also been at one of the highest points in history. Inflation can negatively affect purchasing power over time. And while individual investors certainly feel the pinch of inflation, it more drastically affects importing and exporting between nations.

When these three factors combine, they can create an almost negative explosion within a regional or global marketplace. In addition to everything that has been going on at home, the rising threat of a U.S. recession has also taken its toll on the U.K. economy. While no one knows precisely what caused the current financial crisis, these are the most likely and prominent causes and should as a result be researched further.