Richard Lishman considers the impact of the changing economic environment.
It’s no exaggeration to say that we are living in an uncertain, and often fast-changing financial landscape. 2022 has been a year of many unprecedented changes, and when you consider we’ve had a switch in prime ministers as well as seeing the end of the reign of Elizabeth II, perhaps some economic turmoil in this period is to be expected.
However, there are a number of issues that are impacting people’s finances right now – so let’s have a closer look at what this means for your money:
Mini Budget, big consequences
The fallout following Kwasi Kwarteng’s ‘Mini Budget’ has been considerable. Soon after his announcement in September 2022, the UK saw the value of the GBP plummet to record lows – losing value of five per cent to be worth just $1.03. While the value of the pound did rise again to $1.07 soon after, this was still a significant decline. This plummet put people’s pension policies at risk, and meant that the Bank of England had to step in to provide a £65 billion bond-buying programme to help limit the damage caused.
As you can imagine, this fast made the ‘Mini Budget’ a very unpopular move, and at the time of writing, Kwasi Kwarteng has had to make a U-turn about certain policies included in his announcement. The most significant of these is the reversal of the proposed tax cut to those earning over £150,000 a year. Now, the higher tax rate will stay in place, meaning that if you do earn this figure you will still be paying 45 per cent tax on your income, in line with the higher tax bracket that your income was subject to before.
This isn’t necessarily bad news, even for those who would have benefitted from this extra tax cut. However, this U-turn has already seen the value of the GBP rise against the USD to 1.1250. But what about other economic challenges impacting our current finances?
Mortgage rates continue to climb
Currently, mortgage rates are rising at an astronomical level, meaning that millions of people could struggle to balance their monthly budgets effectively. Interest rates on new deals have risen well above five per cent, and the average rate for an average, two-year fixed rate deal is now at six per cent. To put this into context, at the start of December 2021, this rate was just 2.34 per cent.
The ‘Mini Budget’ led to dealers pulling hundreds of deals from the market. Now, as mortgages are back on the table, they are much more expensive, meaning that many people can no longer afford them or are having to revaluate their finances considerably. This is definitely something to bear in mind if you are nearing the time to renew your mortgage deal, as this could have a substantial impact on your monthly expenses.
Energy prices and on-going uncertainty
Perhaps the biggest issue facing the UK right now is the energy crisis. While the ‘Mini Budget’ did set out measures to help lessen the blow of soaring energy costs, there was mass criticism to the idea of borrowing the money to make this a reality, yet again fuelling a lack of confidence surrounding Liz Truss and Kwarteng’s Budget.
However, on the plus side, the cap on energy prices is in place until October 2024, meaning that many people will be able to more reliably plan their energy expenditures during this time. It is important to remember that the energy unit is the price that is capped, not the overall spend that people can incur. This means that those using a lot of energy will be able to exceed the estimated cost of £2,500 per year, so it’s still a smart idea to track energy usage where possible (smart meters are particularly helpful) and budget accordingly.
Similarly, overall price increases on food and other essentials are likely to continue to rise, especially as there hasn’t yet been a resolution to the conflict between Russia and Ukraine. So, even with the cost of energy capped, the general cost-of-living crisis is still in full effect, meaning planning ahead is essential.
Time for financial advice
In uncertain times, it always pays to have the experts on your side. This is especially true if you want to have the best chance at safeguarding your finances, or if you are saving with a specific goal in mind such as heading towards retirement.
The award-winning team of independent financial advisers at money4dentists are here to give you certainty during uncertain times. With decades of experience helping dental professionals, the team can assist you with maximising your finances and working towards any goals. Plus, with our on-the-pulse understanding of the current economic climate, you can rely on the team to give advice that is truly tailored to your individual circumstances and needs in relation to the bigger picture.
Knowledge is power
The problem with an unstable economic climate is that things can change in the blink of an eye. Events mentioned in this article are likely to change swiftly, and it’s impossible to predict exactly when this current situation will calm down.
However, seeking solid financial advice is always recommended, especially during times of such flux. This way, you can make the most out of your finances and ensure that you’re in the position to weather (or even flourish during) the storm
For more information call 0845 345 5060, email info@money4dentists.com or visit www.money4dentists.com