Can we look forward to a prosperous new year?

The lockdown and consequent deep recession of 2020 was followed by recovery in 2021. But what is in store for 2022?

At Continuum we don’t have the benefit of a crystal ball – but we have looked at some expert opinions to see what the new year might mean for your money.

Good news?

The Organisation for Economic Co-operation and Development (OECD) said Britain is on track for output to jump by 6.9% in 2021, with growth of 4.7% in 2022 and 2.1% in 2023.

The UK is set to enjoy the fastest growth among the world’s seven most advanced economies as the nation bounces back from one of the worst Covid recessions experienced globally.

The final forecast for 2021 is even more exciting than the 6.7% predicted in September, suggesting that the recovery is actually gaining momentum.

But that might not be the end of the story.

And the not so good news

While there could be cause for optimism, there might also be problems. Not least is the new variant of the virus, the Omicron strain, which is still an unknown. Anything that adds to the already high levels of uncertainty about the ongoing effect of Covid could be a threat to the recovery.

There is also the problem of inflation.

The Bank of England’s monetary policy chief and deputy governor Ben Broadbent, has warned that inflation is likely to soar “comfortably” above 5% next year when the energy regulator Ofgem raises a price cap affecting millions of households, forcing up the price of energy and by doing so further increasing the drain on family budgets.

Inflation is not confined to the UK. It is a growing problem across much of the world, as economic recovery from Covid triggers energy, labour and material shortages. These shortages, in everything from semiconductors used in electronic goods and cars to basics such as cement mean price increases as manufacturers compete for the items in short supply.

Inflation is already a major headache for the bank, which is tasked with both keeping inflation under 2% and with helping the economy get back on its feet. It is a balance between using its main control – interest rate increases – and the potential consequence of choking off the recovery. The Bank made the decision in their December meeting to raise interest rates by 0.15% to 0.25%.

Inflation is also a serious problem for anyone on a fixed income and especially for savers, who will find that the value of their savings is rapidly whittled away.

It can be argued that borrowers, including those with a mortgage benefit from inflation, paying back less in real terms than they borrowed. Despite this silver lining, inflation is a danger to the economy as a whole. 

Left unchecked inflation will lead to an increase in the cost of living, squeezing households across the UK and punishing low-income families and younger generations the hardest. This will mean rising wage demands by workers seeking to protect themselves against falling living standards, making inflationary pressures even worse.

“If wage earners’ expectations of future inflation rise in response, or if they seek compensation for the rises in the costs of living that have already occurred, wages could also accelerate further, even without any additional decline in unemployment,” Ben Broadbent.

How will these factors affect you in 2022?

We may all welcome a continuing recovery, but inflation and interest rate hikes may affect different people in different ways.

Savers may benefit from an increase in interest rate – but it may not be enough to compensate for inflation.

Borrowers – including home buyers – could be affected by interest rate increases that increase the cost of borrowing

Pensioners – and pension savers – could find their plans for retirement derailed by inflation which means they need more savings to fund a comfortable retirement.

Fortunately, at Continuum we have solutions.

We can help savers to become investors, potentially harnessing inflation to build the cash value of their holdings, rather than eat into it.

We can help home buyers remortgage to a fixed rate deal, locking in low repayments for years to come.

We can help investors including pension savers find the best way to potentially build their wealth and find retirees the solutions which will make their pension pots work harder.

So in short, if you want to look forward to a more prosperous 2022, the best place to start is with a call to us at Continuum.

The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation you should seek independent financial advice before embarking on any course of action.

The value of investments can fall as well as rise and you may get back less than you invested Equity investments do not afford the same capital security as deposit accounts.

Your home maybe repossessed if you do not keep up repayments on your mortgage.

UK inflation likely to exceed 5% in 2022, says Bank of England | Inflation | The Guardian

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