Equities were generally positive last week, even as the European Central Bank (ECB) pushed through a 0.5% interest rate hike, its first upwards move in more than 11 years.

The base rate, which has sat below zero since 2014, now stands at 0.00%, with further increases expected over the coming months as the bank tries to tame surging inflation.

Due to soaring energy and food costs, consumer prices rose 8.6% in June, year on year – the highest figure ever recorded.

Markets have reacted negatively to interest rate rises announced earlier this year by other central banks, but last week the MSCI Europe Ex. UK finished up 3%, with similar performances from the German DAX Performance and France CAC 40 indexes.

Azad Zangana, Senior European Economist and Strategist at Schroders, suggested markets may have reacted this way as the changes were warranted and expected.

“The ECB should continue to raise interest rates at a steady and accelerated pace to reduce the risk inflation becoming entrenched,” he said. “The Schroders forecast has the main refinancing interest rate reaching 1% by the end of this year, but it now appears that a target of 1.5% may be more appropriate.”

In the US, the S&P 500 rose by 2.6%, with the technology-heavy NASDAQ closing the week 3.3% higher.

Equities could be bouncing because investors may now be inclined to believe that a lot of the bad news is already priced into the market, after a large correction over the course of H1 this year, suggested Zahra Ward-Murphy from Absolute Strategy Research.

“Those taking this view were encouraged last week by a fund manager survey highlighting the significant extent to which investors had reduced risk and equity positions vs. cash.”

A second possible reason for better performance that some are expecting that central banks will have to pare back rate hike plans as the economy slows.

This latter theory is likely to be pushed to the test later this week, with the US Federal Reserve widely expected is increase its central interest rate by 0.75%, after US inflation hit 9.1%.

Turning to the UK, the FTSE 100 rose 1.6%, as the battle for Boris Johnson’s successor continued, with Rishi Sunak and Liz Truss the final two contenders. The two have so far been promoting two outlined divergent fiscal policies. Truss has pitched her tent around cutting taxes quickly, while Sunak has said he would wait until inflation falls before cutting taxes.“What will really matter is the economic backdrop when the new PM walks into No. 10 Downing Street on 6th September (the winner of the poll of Conservative Party members will be declared on 5th September),” argued Ruth Gregory, Senior UK Economist at Capital Economics. “We suspect that by the time the new PM takes office, the economy will be in a recession. That will make it very hard for even the more fiscally-restrained Rishi Sunak to resist loosening fiscal policy.”

Central banks are attempting to walk a thin line of increasing interest rates just enough to bring down inflation, but not so high as to cause a recession. With economic growth slowing in many markets, however many believe we are likely to see some form of recession this year.

However, stock markets don’t always fall in recessions.

“A lot of that pain in markets is exhibited before you get into that recessionary period. So while it looks like we might be entering a recession from here, it doesn’t necessarily mean markets are going to fall.”

Looking ahead, Kristina Hooper, Chief Global Market Strategist from Invesco, noted: “Stocks have been beaten down. That doesn’t mean we won’t see more downside for some stock markets around the world, especially given that earnings expectations are likely to be adjusted downward. But I believe we are far closer to the bottom than the top — and meaningful positive catalysts could present themselves in coming months.”

When you’re considering your future and what to do with your money, it’s vital to ensure your financial security will continue into later life, when you’re no longer earning an income. But is it ever too late to start saving? The answer is no.

Why it is important to save for retirement

Retirement has changed substantially from what it was for previous generations.

It used to be the norm to spend a 30-year career in one profession, often with one or two employers, and for people to stop working entirely once they reached retirement age, which was usually around 60 to 65 years old. However, with life expectancy rising, it’s important to work out how you’ll fund your later years.

How much money do I need for retirement?

It’s difficult to say how much money you need before you stop work, because it really depends on what you want to do.

Many people fund their retirement from a range of sources, including property, ISAs, earnings, and pensions. This can be beneficial because money can be withdrawn from each of these in different ways.

For example, ISA savings can often be withdrawn tax-free on demand (depending on the type of ISA); pensions allow people to withdraw a tax-free lump sum at retirement age; and income from a rental property may be monthly.

Creating a plan

It’s not enough to have savings, you also need a plan – and that’s why it’s a good idea to seek financial advice.

It’s best to meet your financial adviser regularly so they can look holistically at your situation and help you gauge your ambitions for retirement, and what you can do to make these ambitions become a reality.

“Hasta la vista, baby”

Boris Johnson says goodbye at the end of his final Prime Minister’s Questions