What’s in store for the economy in 2016?

January 26, 2016

‘Sell everything!’, screamed the headlines in the middle of January, as RBS economists told subscribers of their investor newsletter that they are about to face a ‘cataclysmic year’. How about that for a start to 2016?! Now, digging a little deeper normally paints a slightly more moderate picture than the one found in the place designed to sell papers, but in this case, the RBS newsletter made even scarier reading, suggesting that investors should ‘sell everything except high quality bonds’, that ‘danger is lurking out there for every investor’, and that ‘this will be as much about limiting losses as making gains’.

Well, they certainly grabbed everyone’s attention there!

It could be argued that notes like this don’t really help anyone, but they’re certainly designed to make investors take action. So should you? Well, if you’re a long-term passive investor with a 30 year horizon, speculation like this isn’t even worth your time. You’re in it for the long haul, and there’s bound to be dips on the way. If you’re a very active investor, however, or if you are living on your investment income, then news like this may get you thinking.

Predicting what’s going to happen in the year ahead is an impossible task. There are potential warning signs, there are charts, and there is data, but the financial world doesn’t run on straight-as-an-arrow tramlines. It’s a winding rollercoaster full of ups and downs and twists and turns, where the rollercoaster is being built as you ride it, affected by all sorts of random things. That said, there’s already been some interesting talk about some of the financial stories that might make the news in 2016. Let’s take a look at some of them:

Interest rates could be on the rise

Let’s start off with a really interesting one. Chancellor George Osborne, speaking to an audience in Cardiff in early January, hinted that the UK needed to be ready for when interest rates rise, noting that the US raised their rates just before Christmas. The papers saw this as a hint from George that rates would be rising imminently, but a week later the Bank of England left the rate unchanged, with members of the Monetary Policy Committee voting 8 to 1 to leave rates at 0.5%, while mentioning volatility in global markets and a sharp fall in oil prices.

Now, interest rates are nothing to do with the Chancellor, but just the fact that he mentioned it is interesting, and while it won’t put pressure on the Bank of England to raise rates, it could well be a signal that it’s something the Chancellor expects to happen at some point this year.

A house price crash?

We know, we know…this comes up every year. But if interest rates do rise this year, we could well see a big impact on house prices as people are either unable to meet their new monthly payments, or can’t afford to get on the ladder in the first place. Not only that, but George (him again!) gave buy-to-letters two slaps in the chops last year, removing tax relief on interest payments, quickly followed by raising stamp duty. Even though the changes don’t come in until 2017, might buy-to-letters change their plans, and could these factors trigger a house price crash? Well, if you’re on a long term fixed rate and you’re not planning to move, then put the kettle on and grab a sudoko, because it doesn’t really matter. But, if your fixed rate is coming to an end, you’re planning on moving, or you’re a first time buyer, this will be a story worth watching closely as it unfolds.

The price of banking is going up…

In the UK, we’re used to free current accounts. In fact, lately, we’ve been used to current accounts that end up giving us money back, like the Santander 123 account, which is the UK’s ‘most switched to’ bank account. Cash back on your bills and interest on your savings. Boom! But at the start of 2016, Santander hiked the monthly price by a rather substantial 150%. Ouch.

When you consider what else is happening in the personal finance realm, it’s actually not that much of a surprise, as the average interest rate on a Cash ISA fell to a record low of 0.85% in December 2015, with six of the big lenders cutting their rates, and HSBC and Santander about to follow suit. Instant access accounts offer even worse returns, down to just 0.48%, while some accounts offer a pitiful 0.01%. This means that you’re going to have to really shop around to find bank accounts or savings accounts that are worth putting your money into in 2016.

As you can see, a lot of the impact of these potential stories is based on your personal circumstances. One person might see a stock market plunge as a catastrophe, while another might see it as an opportunity. A borrower (of money, rather than a tiny person) might see an interest rate rise as a risk, whereas a saver will be pleased about the potential boost to their pot. No matter which way you see it, let us know if you need any advice. That’s what we’re here for.


This article is for general use only and is not intended to address your particular requirements. It should not be relied upon in its entirety and shall not be deemed to be or constitute advice.

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