A lot changed in 2021, and I’m sure 2022 will be just as eventful for the UK economy. Of course, no one has a crystal ball to predict exactly what’s going to happen. But there are some key themes we can expect to continue and carry over from the end of last year into this one.
Let’s explore these wider financial trends and how they could impact the money in your pocket over the next year. I’ll also cover plenty of tips to help you prepare and make the most of what’s ahead.
What is the outlook for the UK economy in 2022?
Although details of what we’ll face this year are not certain, we do have a sketched outline of what we can expect in some areas.
On top of that, I’m sure plenty of weird and wonderful unexpected events will permanently paint the canvas over the next twelve months! Here are some of the big themes in the UK economy that you can expect to see during 2022:
- Rising interest rates
- High inflation (that will hopefully stabilise)
- Strong house prices
- Investing attitudes becoming more conservative
How will the 2022 UK economy impact your finances?
Here’s how each of these big economic themes could affect you, and what you can do to prepare your finances.
1. Rising interest rates
Although the Bank of England base rate has gone up slightly to 0.25%, it’s unlikely to have much of an effect on even the best savings accounts. So you may have to look elsewhere to beat rising inflation with your savings.
The rate rise is likely to have an impact on mortgages. That’s because any change will surely be passed on by banks. However, rates are still at rock-bottom levels. So even a moderate increase shouldn’t make mortgage deals much different. But now could be a good time to go through your finances and check you’re set up with a top mortgage deal.
Elsewhere, rising interest rates are already impacting the investment economy in the UK and the US. This is largely affecting stock markets, which can be quick to react. As a result, investors are beginning to rotate at least some money out of riskier investments and into more stable options.
2. High inflation
Inflation played a big part in 2021, and the start of a new year doesn’t mean this issue will disappear.
Omicron-related restrictions are putting pressure on many companies, with staff having to isolate. This isn’t helping the lingering supply issues. The rolling back of coronavirus pandemic restrictions should help with some supply problems around staffing, but more freedom could also lead to a demand squeeze in some areas.
All signs point towards inflation still being a big talking point in the UK economy, at least for a while. Hopefully, things will settle down and get back to normal at some stage in the year. But we know energy prices are going to increase in spring, so make sure you’re leaving some extra room in your budget for higher utility bills.
3. Strong house prices
With low interest rates, cheap borrowing and inflation, buying a home is still an attractive way to use your cash.
I think the property market won’t be as hectic during 2022. But there will likely still be high demand for houses and low supply. So, strong house prices should play a key role in the UK economy in 2022.
Even if you own a home and can sell it for a good price, chances are that anything you want to buy will also have a high price tag. There aren’t any hints that the housing market is going to crash anytime soon, but who knows? Elevated prices mean that saving for a deposit can be tough. So make sure you’re using any tools available to you, such as the Lifetime ISA (LISA).
4. Investing strategies
You might want to sensibly invest your money to beat inflation. But rising interest rates can dampen the equity markets, which can lead to lower share valuations as it becomes more expensive for firms to borrow and grow.
One good option is using a top-rated share dealing account to look at UK shares. The economy is in a good place overall, and there are plenty of deals to be had if you’re an investor looking for value.
Remember that when buying shares, you may get out less than you put in. So make sure the rest of your finances are looking strong before you jump into the markets.
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About the author
George is a freelance writer focused on educating others in personal finance, tax, and investing. He’s a qualified Financial Adviser and previously worked within property and insurance in a number of different countries…. Read More
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