2017 A turning point of which is right?04 December 2017
The media noise during 2017 about all things Brexit was almost impossible to avoid! Indeed, other important messages about UK and global news were almost drowned out or spun into a Brexit story to give them a different relevance to their original point.
From an economic perspective, we believe that 2017 was a turning point for the UK economy, not because of Brexit or the UK and its relations with Europe, but because there is global change beginning.Global economies are cyclical, and growth set against invariably very low interest and inflation rates has been the norm for some years. We, along with the International Monetary Fund (IMF), do not see this growth position changing in the shorter term, as noted here: https://www.imf.org/en/Publications/WEO/Issues/2017/09/19/world-economic-outlook-october-2017
With UK Bank of England base rates previously at 0.25% and inflation at nil, a situation sometimes known as 'stagflation', with a risk of the worst outcome which is deflation, this environment was not sustainable. Many readers will remember the days of the 1970s, 1980s and 1990s when inflation and interest rates could be double digit and that was the norm. So which is right?
Our view (which as you can guess is no guarantee) is neither. A change, or shift, seems to be gradually occurring to head back to somewhere closer to the middle of these historic extremes, but it is likely to take some time, which will at least give those who have high borrowings time to manage their squeezed purses and wallets.
I appreciate these notes are all a bit gloomy ahead of Christmas and the New Year; however, reality can be stark. If you have deposit funds, the likelihood is that you will see deposit interest rates rise. However, set against a backdrop of 3.0%+ inflation rates now (CPI 12-month rate to September 2017, and 3.9% RPI), the real return received is still negative.
Mortgage and loan costs are likely to rise, and we know that minimum auto-enrolment pension costs will rise from April 2018, all putting pressure on those of working age. 2018 could be a squeeze.
What can you do? Put simply, take some time over the Christmas break to check all of your finances, from income and expenditure, to your payslip or invoiced income, to loan costs, to savings rates. I often advocate this on my BBC radio slots, and it all sounds prudent – it's just finding the time.
As 2017 turns to 2018 and the economic position of the UK changes, now really is the time to take a look at your financial planning to make sure that you are – as a minimum – ready and, preferably, to make sure that you prosper.
Each reader will be affected differently by these possible future changes and because we are all individuals, with individual and unique requirements, no individual advice is provided during the course of this blog. Talk to the team at Chapters Financial to see how we can help.
Keith Churchouse FPFS
CFP Chartered FCSI
Chartered Financial Planner
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