PERSONAL ACCOUNT

The future is uncertain – you need to keep an eye out for risks on the horizon

Act before you need to. It’s cheaper that way. Those who steal a march on looming changes can reap the benefits. Waiting until events force you to react – along with the rest of the herd – is often expensive.

That is still true, even though, as the Bank of England’s interest rate decision this week showed, acting early does bring its own risks.

The decision of the Bank’s Monetary Policy Committee (MPC) to hold interest rates on Thursday was a squealing about-turn. After months of signals that, finally, rates were to begin to rise, the MPC kept Bank Rate at 0.5pc. Mark Carney, the Bank’s Governor, had to suffer the return of his old nickname: the “unreliable boyfriend”.

Those tempted to distrust Mr Carney for his fickleness should be careful. The MPC’s decision still looks for now like a tactical delay, not a change of strategy. Roger Bootle of Capital Economics said there could be “a couple of interest rate rises this year, and more next year”, heading towards a peak of 4pc.

That would be a huge change, although rates would still be low by historical standards.

While any rise will be welcome for savers after years of near-zero rates, it is a future that many borrowers are not prepared for. Data from the Bank’s Financial Policy Committee in March suggested that if rates rose to only 2pc, households would start to struggle as repayments rose as a proportion of their total income.

Those with tracker mortgages will see an immediate increase in their monthly repayments if Bank Rate rises. And fixed-rate deals have already begun to get more expensive in anticipation.

It’s not just interest rate rises you need to be prepared for. The Office of Tax Simplification will report on inheritance tax this autumn. This offers the Chancellor a chance to streamline a much-hated tax, but reforms could also threaten existing estate planning arrangements. It is impossible to predict the outcome, but one option in the air is a change to “business property relief ”, which would limit the ability to pass on Aim stocks free of IHT. It’s worth evaluating your exposure to this risk.

Another strong possibility this autumn is an announcement from the Government on the extension of IR35 reforms, which have landed BBC stars with huge tax bills, to private sector contractors. Anyone who might be affected should check that their house is in order well before the taxman acts.

The future is unpredictable, but it still pays to look ahead. A small Bank Rate rise later this year, with more to come, is still likely. As are tweaks to the tax system. Attentive readers should plan accordingly.

Whatever the future holds, our team will continue providing the news, analysis and guidance you need.

It is always a pleasure to see that hard work recognised and this week the Telegraph Money team won four Headlinemoney Awards – the Oscars of personal finance.

Mark Carney, Governor of the Bank of England, is being called an ‘unreliable boyfriend’ again