Thoughts and predictions on the UK Economic environment for consumers

After the massive COVID curve balls thrown across the globe in the past couple of?years, 2022 has sadly been a year that no-one saw coming,?apart from Mr Putin and his inner circle.?

Before the invasion of Ukraine, all economies were already trying to redress the issues of historical low supply and broken distribution chains resulting from lockdowns.?It was obvious to me that inflation was going to rise, as there?was so much pent up demand to purchase things after many had saved cash whilst they were forced to work from?home and could not go out to shop for non-essentials or frequent normal places of entertainment.?

The world watched the formation of Russian troops along the long borders of Ukraine whilst on 'military exercise' before the sad inevitable invasion began in February.?Putin's decision to try and take the Russian geographical markers back to the time of Peter The Great, has wreaked havoc on the Ukrainian population and infrastructure. Worse still, the rest of the world has been detrimentally affected by this war as supplies of wheat, sunflower oil and gas stocks have become seriously compromised. The shortage of these key products has exasperated any attempts to reduce inflation after lockdowns were removed.

Inflation is predicted to reach a peak of 18% early next year in the UK. Although I sympathise with unions who vote to strike, any increases in payrolls will only fan the flames of inflation, driving this index higher.?It's easy to say, but this really is a time for battening down the hatches wherever possible. To cut back on expenditure so that we can collectively try to slowly snuff out the ever growing ominous shadow of inflation. The older generation have been here before and they know what we are all dealing with.?Pay cannot keep pace with inflation as inflation will just increase accordingly.

There are winners in this present inflationary environment, but the potential for savers gains has been curtailed by the banks as they never pass on all the interest rate rises to customers. Stocks and shares continue to be volatile in many sectors.?It is important that investors take professional advice that reflects their attitude to investment. Never invest emergency money.?It's there for a fundamental purpose.?

Scammers have continued to increase in numbers and sophistication since George Osborne's introduction of what I consider to be the flawed policy of?'Pension Freedoms'. If something is too good to be true, run a mile. ALWAYS take bona-fide professional advice.?If an adviser is not on the FCA register, don't deal with them. (?https://register.fca.org.uk/s/ ). Do your due diligence before talking to anyone.

The majority of us are losers in the present economic environment. Borrowers are seeing the impact the most as we have become used to living in a low interest regime for a very long time. Higher mortgage rates in what continues to be a property market rising in value is unsustainable.?We will probably see the existing buoyant property market begin to retract as first-time buyers, in particular, view the market as too hot and unpredictable to enter.?For the foreseeable future this has become a landlord's market, and will continue to be so for the next couple of years whilst mortgage lending policy tightens and less stock is available for sale.?

Landlords are increasing their rents not just because there is less competition.?They have their own significant issues to cost in.?Many suffered during COVID when tenants defaulted on rents.?This situation looks like it will recur during the next few months as people struggle to pay their monthly financial commitments.?Added to this, January 2025 is approaching fast.?This is when all rental properties are required to have an EPC rating of a C at worst. Upgrading the energy efficiency of bricks and mortar costs thousands ( calculated to be an average of ￡10,000 ). These mandatory upgrades are going to be difficult to do when existing mortgage commitments are growing.?All these costs, where possible, will be passed on to tenants through rising rental payments.?

My predicted housing market retraction will begin by property values levelling out and possibly decreasing over the short term. The property market will take time to recover as higher rents and higher living costs ( food, energy and the costs of goods and services ) curtail the ability to save sufficient levels of deposits for first time buyers to re-enter the market in significant numbers.

In my capacity as an Independent Financial Adviser I think this is the time to carefully manage the storm.?Many sadly have no choice but to cut back in order to survive. We know that thousands of households across the country are having to choose between eating and heating.?For those fortunate not to be in this horrendous situation, I think it still remains important to cut back and save.?Not only will this mean that we collectively start to positively reduce inflation and hopefully avoid a recession, but that we are preparing for future key personal fiscal decisions in doing so.?Everyone needs to be creating realistic retirement income streams as no-one can retire comfortably by just relying on State Pension Benefits.?

For years we have been creating estates for our children to inherit through the increased value of our homes.?I have seen many clients help their children through COVID by either gifting cash savings, taking out mortgages or exercising pension freedom options.?But all these desperate highly admirable actions to help those that we love, mean that these assets are no longer available to us when we need them at the end of our working lives.?In addition, COVID and the ravages of inflation have meant that a large proportion of Gen Z and Millennials are now struggling to create assets of their own. These two generations are going to find it a lot harder than their parents and grand-parents did.

I hope that we will turn the corner in 2023, but careful financial planning is required now for damage limitation.?

If you want to try and make your money work for you in these difficult times, please email me at [email protected].?It's important to regularly review your situation and what you have created for existing and future plans. Your life changes and it is easy to forget to not adapt well made plans accordingly.?Added to which products change and some sectors of the protection market in particular have become more competitive.?This has driven the cost of protection down.?On this basis, a professional review might save you money.?

Rowena Chowdrey

Independent Financial Adviser in West London

www.financialmoves.org