Published: 16 October 2021
The time has come for me to look at my own finances. Updated Will, revisit life assurance etc. Part of the review will also mean that I plan to change my mortgage. Should I fix the rate… what do I think will happened to interest rates? The direction of travel can surely only be in one direction, and so with an option to fix for 5 years I will definitely do so.
I am far from suggesting that interest rates will not increase to deal with inflation… I am though pretty confident that they will not go down.
It has though made me think about how the economy is faring. There are people far more qualified than me to advise, but my go-to journalist when I need some thoughts is David Smith of The Times. An article of last Tuesday (12 October) struck a chord with me: -
“Today I want to take you briefly back to 1973. It was a year when the economy grew very strongly — 6.5 per cent, similar to the growth rate predicted for this year and the best in the postwar period. A Tory chancellor, Anthony Barber, was in charge and the period became known as the Barber boom.
In the autumn of 1973, however, people and businesses were not glorying in the year’s dramatic growth rate, which had mostly happened earlier in the year. They were looking with trepidation at an emerging energy crisis. The Yom Kippur war, the fourth Arab-Israeli conflict, led to an embargo by the Organisation of the Petroleum Exporting Countries on oil supplies to nations, including the UK, that had supported Israel.”
There are certainly some parallels with our now soaring gas prices and high growth rate, but whilst I do not think that we will fall into a second “Winter of Discontent”, I do though think that growth will be as good as we might like over the next couple of years. It is true that numerically, growth is good, but then the math will always show that given the hit from 18-months of COVID.
Unlike normal recessions, the hit during COVID was a once in a century event, and so it would be bold to call how the economy will react.
The level of economic support has been exceptional (I considered using the word unprecedented, which whilst the right one, I cannot bring myself to do so!). Just how will the unravelling of that support effect business and the people that work in them? – Furlough, Universal Credit and SDLT that has frankly caused a ridiculous spike in house prices.
What next for energy bills: how quickly can geo-political issues with gas supply be dealt with, and more importantly, why didn’t I remember to fill up my oil tank sooner until leaving it until the last minute as usual?
As I have written before, I think the key issue is confidence.
I have traditionally been confident in Conservative economic policy (not necessarily their more illiberal policies). I do not though think that telling businesses to pay more is a solution to staffing shortages. Especially on the back of increases in National Insurance rates, and Corporation Tax. For individuals, frozen income tax thresholds create tax increases by the back door. Council Tax has to increase, and then there is talk of a national road pricing scheme to replace fuel duties, with motorists paying by the mile.
None of this helps confidence… you only have to see what happens when the government tells everyone not to panic about fuel shortages! (Despite my warning light on, how I laughed when I saw panic buying at my local petrol station: then after a closed BP, a closed Tesco, how I clenched in the queue at Morrisons, which had petrol but no diesel).
Back to interest rates. There are no plans for the US nor Europe to increase rates in 2022. My hunch is that if they do increase the increase will be tiny.