What does 2012 have in store for your finances?
Saturday, 31 December 2011 12:38
By Kate Saines
Closing the door on 2011 will be a huge relief to many following the year of financial woe we have endured. But will 2012 see the economic crisis deepen or will there be economic hope and optimism for us all?
We’ve tapped into some expert opinion to find out how 2012 will fare financially for both the national and individual purse strings.
Will we be in a recession?
Let’s get straight to the point and answer the question on all our lips – are we really teetering on the edge of a double dip recession? And will this last throughout 2012?
It would seem the answer to this is, if you live in the Eurozone – yes, recession is looking imminent for the start of 2012.
But for us in the UK the economic decline will not run quite so deep, according to many experts.
This does not mean we won’t face hardship, however, as Michael Clark, a portfolio manager at Fidelity Worldwide Investment explained.
He expects economic growth to be slow in both Europe and the UK in 2012 as banks shrink and restructure making credit scarce.
He thinks we – the consumers – might well feel less pressure in 2012 than we did in 2011 because there will be no tax increases and inflation may come down, but confidence will recover at a slow rate.
“Despite these concerns,” Mr Clark said, “I don’t expect another deep recession, with the sharp fall in GDP we experienced in 2008.”
Meanwhile, there is a widespread view among commentators that the European economy will not be so fortunate.
Amit Lodha, also a portfolio manager at Fidelity, said: “I expect the European economy to enter into a recession on the back of constrained bank lending and austerity measures.
“The policy response from the ECB will dictate the length and depth of the recession, and its socio-economic implications. I am getting incrementally concerned Europe may be headed for a long period of slow growth similar to what happened in Japan.”
Looking specifically at the UK, however, it would seems things will get worse before they get better – that’s according to Tim Moore a senior economist at Markit.
He said more than twice as many households were downbeat about their financial prospects for 2012 as those who expected improvement.
“Growing job insecurities and lower wage settlements highlight that unfavourable employment trends are the main factor clouding the outlook for finances in the year ahead,” he said.
And he added: “Although a fall back in inflation will help alleviate pressure on the household finances next year, consumer sentiment looks set to remain subdued by a lack of improvement on the income side of household balance sheets.”
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What will happen to the housing market?
There was a glimmer of hope on the horizon for the housing market at the end of 2011 when figures were published showing house purchases were up slightly.
It led one mortgage expert, Simon Collins of mortgage adviser John Charcol, to concede both residential and buy-to-let property values are holding up surprisingly well.
And the Council of Mortgage Lenders (CML) reported gross mortgage lending in November 2011 was enjoying its fourth consecutive year-on-year rise and was 13 per cent higher than in November 2010.
However, whether this upward surge is to continue in 2012 is a hard one to call. The CML said it expects wider economic uncertainty predicted for 2012 to have an effect on the number of homes which are bought and sold in the New Year.
It has even gone as far as to predict fewer transactions next year.
Bob Pannell, chief economist for the CML, has “pencilled in a broadly flat picture” for both mortgage lending and property transactions in his forecast.
He said: “As a by-product of sovereign debt worries, lenders face challenging conditions in wholesale funding markets, and these could have negative effects on the cost and availability of UK residential mortgages through some or all of next year.
“But, if European leaders navigate a comprehensive and sustainable way through Eurozone problems, current financial stresses could heal – and the previous pattern of gradual improvement in cost and availability of funds re-emerge – relatively quickly.
“This in turn could have a major benefit on UK growth prospects, and boost household confidence and appetite to borrow.”
It has been predicted, meanwhile, interest rates will remain low in 2012 with the Bank of England holding the base rate at its 0.5 per cent low for some time to come.
According to Skandia, almost two thirds of financial advisers think they will remain at this rate throughout 2012.
Ray Boulger, also of mortgage adviser John Charcol, even went as far as to predict it would remain this low until 2014.
This means anyone on their lender’s standard variable rate (SVR) or on a tracker mortgage will continue – if predictions are correct – to benefit from lower rates if they remain on these deals.
What will happen to the price of houses in 2012? The National Association of Estate Agents (NAEA) predicts, on average, there will be little change.
Properties in desirable areas will see healthy demand leaving less sought-after parts of the UK lagging behind.
“Pressure for housing will increase in London and the south east throughout 2012,” said Peter Bolton King, the NAEA’s chief executive.
“The top end of this market will also remain very resilient.”
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Will debt deepen in 2012?
Debt is something we could all do without in 2012 – and that appliesto both the public and private wallets. But the struggle to pay for this Christmas alone will see almost three in ten of us in the UK plunged into the red as we ring in the New Year.
And to make matters worse it will take us an average of nearly six months to pay of this festive debt, with around eight per cent of Brits stilling digging their way out of it a year later.
That is according to statistics released by uSwitch.com which warn we face a New Year blighted by debt, with the average owed being £274.
Michael Ossei, personal finance expert at uSwitch said 2011 has already been a tough financial year with the cost of living rocketing and pay frozen or cut.
“Even those who have enjoyed a pay rise will have seen the benefits eroded as household bills soared,” he added.
It seems the problems faced in 2011 will have a knock-on effect to 2012.
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Where should I save and invest in 2012?
According to many predictions, inflation will fall in 2012. This is good news for savers as in times of very high inflation – as we have seen this year – the value of interest on our savings pot is instantly eaten away by the high cost of living.
According to Skandia, 60 per cent of financial advisers believe inflation will decrease over the next year compared to just 15 per cent who believe it will increase.
But with most experts predicting the Bank of England will keep the base rate low, it would seem there is little promise of savings providers pushing up the returns they are willing to offer to savers.
As always the advice for 2012 is to ensure you are making the most of your tax benefits such as your ISA allowance.
If you are considering putting your money into the investment markets the Share Centre has tipped toy manufacturer Hornby as a company worth watching.
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Graham Spooner, investment research analyst for the firm, said: “The summer months could see an increase in sales for the manufacturer as it has released a London 2012 Olympics collectibles range, which is reportedly gaining sales momentum.
“The range has also led to new relationships with retail outlets, which should lead to continued growth.”
If you’d prefer not to put all your eggs into one basket, Tom Biggar, head of investments at TQ Invest has offered his pick of the best funds for 2012.
They include the M&G Optimal Income fund, the Invesco Perpetual High Income fund and the First State Global Emerging Market Leaders.
M&G’s fund invests in corporate and government bonds and currently has a yield of 5.1 per cent which, according to Mr Biggar, makes it an attractive pick for the income investor.
The Invesco Perpetual fund is run by Neil Woodford who Mr Biggar describes as being “one of the last bastions of true long term investing” and “someone to turn to when conditions get tough”.
Meanwhile, First State’s fund provides investors with the opportunity to invest in emerging markets. The cautious management approach, said Mr Biggar, has resulted in top performance over the last two years.
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