Tag Archives: Economy

Should Consumers be Prepared for a Base Rate Rise?

interest rate riseThe Bank of England’s Monetary Policy Committee (MPC) has once again chosen to keep the base rate at its historic low of 0.5%. The latest predictions suggest that the rate could now stay there for another year before finally rising from the low point it has maintained until 2009. Nonetheless, the latest vote has once again raised concerns about what the impact will be on consumers when the rate finally does increase, and questions about how much preparation the average consumer should do.

Concerns relate to the section of consumers who have debts, and most particularly mortgages. The long period for which rates have remained at their lowest ever level has led to a large number of mortgage-holders in the UK who entered while rates were affordable and have never had to face an increase. There are fears that this class of borrower may have become complacent and be ill-prepared to afford increased repayments when rates do eventually pick up.

There are also concerns about the way this could impact the wider national economy. With households having debt worth 135% of their total income and rising and higher levels of unsecured borrowing than before the financial crisis, many experts believe that the section of the population that is most vulnerable to a rate rise could also have enough collective debt to create serious national economic repercussions. Other experts, however, point out that while the size of the average mortgage is higher than pre-crisis levels, this could be offset by the fact that the percentage of households that actually have a mortgage is lower than it has been for some time.

On the individual level, the size of the impact that a rate rise would make on any given person or household is heavily dependant on circumstances. However, it is unlikely to be disastrous for the majority of people, especially given the Bank of England’s caution in introducing a rate rise and their recently-repeated intention to roll out increases slowly. Recent research suggests that the average consumer is well-positioned to deal with this kind of gradual rise. Those who have stretched their finances as far as possible to secure a mortgage they can only just comfortably afford may find themselves strained, and those who are already seriously struggling with debt will find it hardly helps their situation. For most borrowers, however, it is likely to be more an inconvenience than a big financial burden.

Nonetheless, this does not mean that being prepared is a bad idea. Whether current predictions that a rate rise will take place in about a year’s time are correct or not, at some point the base rate will increase. If you are at all concerned about the affordability of your mortgage or other borrowing should rates increase, then have a look at your situation and work out just how much you could afford and where you might be able to find financial leeway if necessary. Whether you are actively concerned or not, you may wish to consider remortgaging while rates are still low if you have the option, thereby securing yourself current rates for a longer term with your new deal.

Osborne Calls Emergency “Stability” Budget

Following the Conservative victory in the UK’s general election, George Osborne has announced a new budget to be delivered on the 8th of July this year. The unusual move of delivering an extra budget is, he said, part of the government’s efforts to “deliver on the commitments we have made to working people” as soon as possible.

Previously, Osborne delivered the annual budget on the 18th of March. Through an article in national newspaper The Sun, he acknowledged that inserting an extra budget mid-year was an “unusual” step to take. However, he said that it was down to a desire to make “promises made in the election into a reality” with the minimum of delay.

The “stability budget” to be held in July will, Osborne claimed, concentrate with “a laser like focus” on improving UK living standards through raising economic productivity.

The chancellor has given a rough outline of the plans he expects to deliver in this budget in a conference outside 11 Downing Street. However, he would not yet go into any details of pertinent issues such as plans to make £12 billion worth of cuts to welfare. During the election campaign, the party provided details of how £2 billion worth of cuts would be achieved, but the remaining £10 billion remains unaccounted for in the details so far released.

While Osborne would not go into specifics about how the government’s goals would be achieved, he was happy to outline what the main goals are. The budget will, he said, represent a continuation of a “balanced plan” from the government to reform welfare, reduce government debts, and invest in the National Health Service. The welfare reforms, he said, would focus on efforts “to make work pay.” However, he refused to give any indication of where or how they would make the planned £12 billion of cuts to welfare funding. He only said that the government wanted to create “a welfare system that’s fair to the people who pay for it” but would “always protect the most vulnerable.”

Osborne also said that the government will increase NHS funding each year, continue cracking down on tax avoidance, and help to create new jobs including an extra three million apprenticeships.

Labour’s Caroline Flint, shadow secretary for energy and climate change, said that the Tory election campaign has involved a number of “uncosted promises.”

“It will be interesting,” Flint continued, “to see who is going to pay for those uncosted policies when they bring in the budget in July.”

2015 Election: Financial Policies of the Major Parties

The three main parties and a host of minor ones are now battling for votes as next month’s general election approaches – an election which has been called one of the hardest to predict in many years. They have very different policies on many important issues, so the election results could have a significant impact on many aspects of the UK. Perhaps one of the main ways that the election result could affect everyday life for the average UK household is through their policies on financial matters such as taxation.

Labour, the Conservatives and the Liberal Democrats have always decidedly dominated election results, and are widely considered the three main parties. These three key players in the UK political scene have the following policies on matters of finance:

Labour

Labour’s big plans for the UK economy as a whole involve reducing the UK’s levels of national debt “as soon as possible” and bringing about a situation of budgetary surplus. In order to keep the national debt in check and ultimately bring it down, they would cease new borrowing for government spending. They also plan to lead a campaign against tax avoidance, with UK overseas territories that refuse to cooperate with these efforts threatened with a place on an international blacklist.

Regarding the issues that more directly affect the average household, Labour plans to bring back the 10p bottom tax rate, which would result in an income tax break for 24 million UK citizens. The party would drop the Married Couples’ Tax Allowance in order to fund this. They would also introduce the much-talked-about concept of “mansion tax,” levied on properties worth more than £2 million, raising an estimated £1.2 billion. Furthermore, Labour would bring back the top 50 rate of income tax for those earning more than £150,000 annually, tax bankers’ bonuses and cut every government minister’s pay by 5%.

Conservatives

The Tories hope to get rid of the UK’s deficit by 2018, and by 2019/2020 they hope to follow this with an overall surplus in the budget. Their plan is to bring this about through cuts in spending rather than through new or increased taxes.  NHS spending would not be in line for cuts. Rather, the Conservatives plan to increase health spending.

By 2020, the Tories hope to cut income tax for 30 million UK citizens. The personal allowance would be raised to £12,500 a year, and the 40p top rate of tax would take effect from £50,000 a year rather than the current level of £41,900.

Liberal Democrats

The Lib Dems plan to get rid of the deficit by April 2018 through “strict new fiscal rules.” Like Labour, the Liberal Democrats plan to bring in a “mansion tax,” which would operate in bands much like council tax.  UK banks would be subject to an extra 8% corporation tax rate, raising £1 billion a year to help get rid of the deficit.

The Lib Dems plan to raise the personal allowance to £11,000 in April of next year, and bring it to £12,500 by 2020. They would raise capital gains tax to 35%, from the current rate of 28%.

Survey Says UK Families are Positive About Future Finances

Financial information company Markit noted that its Household Finance Index (HFI) has reached a higher level in three years. This means that UK citizens are more positive about their household finances since the year 2010.

The HFI’s index, which hit 40.8 in June, signifies a very high number but because it is still below 50, many people found a decline in the standards of living. Anything above 50 is a sign of improvement.

Job security expectations have also improved in the next few years, but many still expect the economy and their financial situations to get worse. Workplace activity indexes fell from 53.3 to 52.8 in June, indicating people are less confident about job security. However, being above 50 in its fifth month indicates people expect more jobs to be stable and only concerns about finances are left.

Analysts said that the labour market condition’s improvement helped increase upturn in household financial expectations in June. Workplace activity had reached very high levels, indicating a decrease in job insecurities.

However, the UK remains having a high unemployment rate, significantly affecting those in the younger age group. The OECD warned that the younger generation spend more time out of work, spending 2.3 years unemployed, because they lack the skills or requirements needed for many occupations.

How General Economy Affects Your Budgets

Budgets are often made based on economic factors that arise in different areas and times of every country or the world itself. Without a consideration for economy, budgets can instantly fail. Economy involves the supply and demand, the prices of products and services and the ability to predict the future prices of products and services, which would greatly be helpful in determining the next financial step in the future.

Economy deals with supply and demand. When a country’s industry sector is strong, there can be a surplus of items. Surplus, by definition, are excess items that would be sold at a lower price to be rid of, regardless of initial costs as it is doing well in exportation or local sales. Clearly, the lower price is because of the lacking demand for the items or services. The higher price of items can be due to the demand while having a lacking production of the products and services.

Knowing these basic principles, you can determine that the items you can purchase today and the services you enjoy today can rise or fall depending on the outlook of the product or service’s original country. In making your budget, take into consideration the economic outlook; if the prices will go up or go down, then decide purchasing items based on quality and quantity.

Quality and quantity are two different things. High-demand products that are deemed “needs” by the public are usually mass-produced and have lower quality. High quality items that are also needs are essential depending on their price and the future “demand” for them, especially if their manufacturers are limiting the supply in the near future.

General economy, even the oil industry, affects everything including your budget. Oil affects the prices of sending goods; when the oil prices are high, chances are the items you receive get higher prices as well.

Recent Posts:

For Which People is Car Leasing Advisable?

How The Libor Scandal Exactly Affects You

Stock Market Starters: The Things An Investor Should Know