No one can deny that 2011 was, in many respects, one the toughest ever years financially for people, businesses, and governments around the world. However, it also saw consumers benefit from some of the longest interest free balance transfer periods on credit cards ever seen, the new Consumer Credit Directive change the balance of payments hierarchy for everyone benefit. So given the mix of tasty fruit and banana skins 2011 offered we thought we’d look into our crystal ball to give our view as to what 2012 might hold for UK personal finance.
Double Dip Recession?
The main thing everyone wants to know is whether the UK will slip back into another recession and there are as many answers are there are experts on the subject. Our answer is, “possibly” – although don’t quote us on that! Yes, you want more information than that but it’s impossible to give a definite answer. Some analysts are predicting that whilst the Eurozone may end up in recession, the UK could come out of it relatively unscathed. Whereas others believe that the UK will be just as badly affected, as things will get worse before they get better, with the second dip being even tougher than the first in 2008.
Either way UK personal finances are more likely to be affected this year by Government cuts and public sector job losses. The private sector is not in a position to pick up the pieces and even if it were it would be questionable whether private sector wages would match Inflation, which rose to a record high towards the end of 2011. Although it is thought that this will decrease throughout 2012 it will continue to put pressure on households to tighten their belts and get more finance savvy.
The total UK personal debt decreased by 0.02% to £1451bn from October 2010 to October 2011 and the average household debt decreasing by just less than 7% to £7,984 (excluding mortgages). The average consumer borrowing on credit cards and other forms of unsecured finance also decreased, down to £4,226 per average UK adult. Despite this slight decline in the amount owed by UK consumers, the Office for Budget Responsibility (OBR) still predicts that household debt will increase to £1823bn by end of 2015, and £2045bn by Q1 2017.
These statistics from Credit Action coupled with the fact that three in ten of us decided to go overboard and plunge into debt for Christmas and New Year, make it look likely that personal debt will deepen further into 2012. Research has shown that it takes most of us around six months to pay off Christmas debt, with 8% of us still struggling with it 12 months later. So, it looks like 2012 will be just as tough on our wallets as last year. Ouch!
The Housing Market
The figures published at the end of 2011 suggested that house prices were on the rise as did the gross mortgage lending reported by the Council of Mortgage Lenders (CML). The CML went on to say that it did not know what to expect for the remainder of 2012 as economic uncertainty was expected to widen. However, there is some good news for mortgage holders though as the Bank of England base rate is expected to remain at 0.5%.
Savings & Investments
If predictions are correct and the Bank of England base rate does stay at its record low for some time, savers could struggle to see the benefit. On the plus side inflation is expected to fall, which is good news as the value of your savings should at least stay intact. Due to the poor savings climate it is more important than ever that you take full advantage of your ISA allowance.
Finance Bill 2012
One of the most important things on the 2012 agenda for personal finance is the Finance Bill 2012. The draft legislation for consultation was released by the Government in December, and is expected to be published after the Spring 2012 Budget in March.
There are a number of changes on personal tax, corporate tax, and charities included in the Finance Bill 2012, a summary of the draft legislation is below.
• Income tax thresholds and rates will be updated
• Details of the 50% tax relief scheme for SMEs (Seed Enterprise Investment Scheme) will be unveiled
• Statutory resistance test delayed until 2013
• Inheritance tax nil band and capital gains tax exempt amount to increase with RPI from 2015/16 and 2013 respectively
• Main corporation tax rate to reduce to 24% in 2013
• Improvements to Research & Development tax relief for SMEs
• Easing of conditions relating to real estate investment trust
• Bank Levy to increase to 0.088% from January 2012
• Changes to UK accounting practice
• Tax liability reduction
• Rate of inheritance tax to decrease to 36% when 10% of an estate is left to charity
• Withdrawal of Self Assessment Donate Scheme in April 2012.
What can I do?
With all the uncertainty it is tempting to simply shrug our shoulders and say, “…it’s out of my hands.” but that’s not the case. Worry about your little bit. If you can get you finances ship shape when everyone else is struggling there will be opportunities. Perhaps a bigger house, cheaper stocks & shares, bargains in the shops, but you’ll need to be in control of your finances to take advantage – Anything else is simply an illusion.