recession
Rocky road to financial recovery
Although the UK entered recession as long ago as the second half of 2008 and officially exited recession at the end of 2009, a full recovery still seems a long way off. This week was one of mixed messages – some good and some bad.
First came the bad news that the Consumer Price Index (CPI) had increased from 4% to 4.5% in April. The CPI is used to measure inflation in the UK and to compare it with the government’s target of 2%. A low level of inflation (like 2%) is a sign of a healthy economy, but higher rates usually mean that the costs of goods and services are increasing faster than workers’ wages, leading to a lower standard of living. For those of us already finding it hard to make ends meet, this is obviously bad news.
On the flip side, however, there was news that unemployment fell in the first quarter of this year. The decrease was only slight, to 7.7% from 7.8% the previous quarter, but it is a promising sign – as is the fact that the number of people in employment has increased to 29.24 million, just short of the pre-recession peak of 29.57 million.
What does all of this mean? Well unfortunately, these numbers are just a small part of the complex system that makes up the British economy and predicting what will happen next is astonishingly difficult – as no doubt you’ve noticed in the past few years. However, it seems that the economy is continuing on its long, slow recovery from the greatest recession in living memory. The recovery appears to be fragile – which is one of the reasons that the Bank of England has left its base rate at 0.5% for the 26th month in a row. You know what they say – slow and steady wins the race!
Coalition pledges to affect tax
So we’ve got a new, coalition government and they have published the details of the agreements which were reached between the Conservative and Liberal Democrat parties. As you can see in the linked article, campaign pledges from both parties were included in the agreement, reflecting the compromises necessary.
They have promised that a new budget will be announced within 50 days, which will include changes to PAYE taking effect from April 2011. These changes will include increasing the income tax personal allowance to reduce taxes for low and middle earners (although not immediately the full increase to £10,000 the Lib Dems wanted), but the employee National Insurance threshold changes the Conservatives put in their manifesto will not be included. However Labour’s planned increase in employer National Insurance will not go ahead, pleasing Conservative supporters.
Full details will not be available until the promised emergency budget, but I promise to make available as soon as possible any relevant changes to The Salary Calculator!
Election come down
So after all the hype and canvassing and the debates, the results are in – and it’s a hung Parliament, the first since 1974. What does that mean for your money? Well, first of all, the pound has fallen against other currencies – 4 cents against the dollar and 3 cents against the Euro – bad news if you were about to go on holiday!
Why is this? In short because the value of a currency is related to how confident investors are in a country’s economy. Historically, hung parliaments in Britain are unable to act as swiftly as majority governments, because consensus must be found by the members of coalition parties – who often disagree on certain principles. These delays in acting may hinder our recovery from the recession – so investors would rather not be holding on to the pound. Of course, if it does lead to a slow recovery (or even the “double dip” recession some analysts have been predicting), then this could continue to hit us in the wallet for months to come – with the effects of the recession continuing rather than abating.
Another area that was to be decided by this election was income tax and National Insurance. As I wrote previously, all the parties had set out in their manifestos their intended changes to the PAYE system. I put these all in the Election Comparison Calculator – which shows you want impact these differences would have on you. With no party yet in charge, it’s not clear what will happen about this – whose policies will be enacted? The Conservatives, who have the largest number of seats, said they would hold an emergency budget to implement some of their changes before next year. We’ll have to wait and see to find out what really happens.
UK economy turns around
So finally, the news we’ve been waiting for – the UK economy has come out of the longest recession since records began. In the 3 months to the end of December, the GDP (Gross Domestic Product) of the UK grew by 0.1%. This is only a very small growth, but it’s growth nonetheless – for the previous 6 quarters UK GDP had been shrinking.
This is a very encouraging sign, especially since the UK was one of the last major economies to still be in recession, others having returned to growth some months earlier. However – before we break open the champagne we should note that these are only preliminary figures – often GDP figures are corrected up or down at a later date, as explained here. Also, 0.1% is only a low growth rate and most analysts are predicting slow growth for the rest of 2010.
Still, after the recent turmoil a few quarters of good, solid, sustainable growth should stabilise the economy and see the job market (and mortgages and loans) pick up as confidence increases. A stronger national economy should also help the Pound make back some of its recent weakness against other currencies – although, again, this is likely to be a slow process.
Time to make some changes
2010 beckons and the start of a new year is for many people the time to sort out their career or their finances. The Salary Calculator is here to help you if you want to make some changes to your financial situation.
It might be time to look for a new job – the Christmas break gives one time to consider career plans, and you might think that in January you’ll start looking for new employment, or talk to your employer about a promotion. Use The Salary Calculator when comparing salaries so you know how much extra it would make to you each month if you got that pay rise.
If you need some extra money each month, to save up for a holiday or a new car say, then use the Required Salary Calculator to work out what salary you need to look for to get that extra take-home. There’s hope that early in 2010 we’ll hear that the UK has finally left recession and things will start to pick up – including the job market.
If you’re not interested in a new job, you can consider sorting out your finances. Use the Mortgage Repayment Calculator to get an idea of the effects of remortgaging in 2010, or the Debt Consolidation Calculator to see what you could save by taking control of all of your loans. Why not try to get debt free in 2010?
Here’s to a great new year for everyone, I hope that The Salary Calculator will help you with your money in 2010!
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