How to weather financial storm

Kwasi’s gamble spells chaos..and opportunity

I write this column to help you make better money decisions and to improve your financial position. This is especially so in difficult times like now.

After two years of a pandemic, we are likely to enter a recession.

This means trade and industrial activities are reduced – generally identified by a fall in Gross Domestic Production in two successive quarters.

This is due to be confirmed later this month when the Office for National Statistics releases third quarter figures.

On top of a looming recession, the Bank of England has raised interest rates to the highest level in over a decade, currently at 2.25%. This is expected to rise, according to Trading Economics, to 6.25% in 2023 before pulling back to 5% in 2024.

Sterling tumbled against the dollar to below $1.09, its lowest level since 1985 after Chancellor Kwasi Kwarteng made history, revealing a £45billion debt-financed tax-cutting package.

It was a gamble to stimulate the economy and only history will show if it was a clever, or foolish move.

With everything that is going on, what can you do to make the most of the situation? Remember we can’t control the economy, but we can control our actions.

Kwarteng gambled and only time will tell if it was a clever or a foolish move

Mortgage Rates

If you haven’t already done so, it’s probably a good idea to investigate fixing your mortgage interest rate.

Interest rates are likely to be higher in the future than they have been, so depending on your personal situation, looking at a five-year fixed rate should see you through this storm.

If you’re currently fixed, remember mortgage offers are normally guaranteed for six months, so don’t leave it until your rate ends. Set a reminder now to fix your rate at six months before it finishes. It may also be a good time to use investment capital to reduce debts including your mortgage.

Pension payments

The rate of income tax is reducing in April 2023, so if you are planning to make pension payments, doing so before then makes sense.

Those earning up to £50,270 will receive 20% tax relief, rather than 19% after April. If you are an additional rate taxpayer, you will receive a whopping 5% extra tax relief.

Investments

Both equities and fixed income investments have been shaken this year, which is unusual. If you have invested in a World Equity index fund, as I have discussed previously, you would have been cushioned somewhat by the strengthening of the US Dollar.

Fixed income investments have fallen mainly due to the fast increase in interest rates caused by the rise in inflation.

If you are a long-term investor, having your money invested for at least five years, I see no reason to change your plans and you could see this period as an opportunity to buy investments at a lower price.

For Financial Planning Week, I will be doing a special live Q&A on YouTube. If you have any questions, please connect with me tomorrow at 6.30pm.