Economic Trends to Keep Your Eye On In the New Year

Economic watchdogs were kept on their toes in 2017, monitoring extraordinary conditions around the world. Among the most exciting circumstances, Brexit and other UK financial developments marked a year of ups and downs, which may continue in the new year.

It has been a wild ride for Britons, responding to Brexit uncertainty and the financial fallout associated with the decision to leave the EU. By most measures, the results of the vote have not taken a catastrophic toll on UK residents or the larger economy. But the decision has added a certain amount of economic instability and contributed to some of the most important financial trends impacting Britons in 2017.

Mortgage Rates on the Rise

It has been a long road back from the mortgage meltdown. Still operating in the wake of the global crisis, banks around the world continue to tread lightly, cautiously manipulating interest rates. The steady base rate held by the Bank of England has resulted in a decade of unprecedented low interest rates for UK mortgage seekers. Liberalised bank policies, granting easy access to financing have also fueled the boom of affordable mortgages.

The first part of 2017 saw historically low mortgage rates, repeatedly overtaking previous all-time lows. Not until November did the BOE make a move, bumping the Bank Rate upward, from its long-held spot frozen at .25% to the new rate of .5%.

Nudging the rate had an immediate impact on some borrowers. Variable rate loan repayment, for instance, is more expensive as the base rate climbs. And “tracker” mortgages quickly respond to Bank Rate changes, resulting in higher payments for home owners saddled with this type of financing. The quarter-point adjustment could mean as much as £250 in additional mortgage interest annually, for someone with a repayment mortgage valued at £150,000.

Variable and tracker mortgage rates are subject to further increases, should the Bank continue moving the rate upward in 2018. It’s a safe bet things are headed in that direction, so UK borrowers are urged to move from these types of financing to fixed-rate mortgages, before the variable loans become even more expensive to repay.

Higher Prices

Inflation has been a concern since the EU referendum, which created a “Brexit effect” on UK prices. As the value of the pound slipped following the vote, UK consumers started paying higher prices for imports, which continued all year. Combined with surging energy prices, weakened sterling eroded buying power in 2017, leaving UK families with higher bills for goods and services.

The Consumer Price Index (CPI) measure of inflation surpassed three per cent in November, falling short of the Government’s target of not more than two per cent. Compounded by stagnant wages, working families took a hit in 2017, so earners will be looking for relief in the coming year.

Better Savings Rates

Low savings rates dragged down personal financial growth in 2017, but there are some signs savings are recovering. Overall, rates improved for the year, owed in part to the BOE interest rate bump and brisk competition among banks. High street institutions may still be the source of the most paltry investment returns. But savvy investors continue finding better opportunities to grow their money with building societies and smaller banks, offering better terms.

Leaving your money on deposit with one of the leading banks may keep you earning less than .1 per cent interest. But encouraging news shows that easy-access savings rates and return on fixed-rate bonds are both up considerably since January of last year. Many experts see the trend continuing in the coming year, particularly among smaller banks eager to attract new savings business.

Some good signs can be taken away from the way the global economy finished 2017. And though Englanders have wrestled with a few challenges since the referendum, things could be much worse at home. In the wake of a base rate raise, finance-minded Britons can expect mortgage interest, savings rates, and inflation’s effect on consumer prices to remain trends worth watching in the coming year.

Paul graduated in 2001 with a degree in Finance. Since then he has gone on to work for several of the UK's most well-known financial institutions.

An avid blogger and a huge football fan, Paul is here to guide you through the ins and outs of personal finance and perhaps save you some money in the process!

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