The Salary Calculator

The potential 2022 recession and how it might affect personal finances

by Madaline Dunn

With slow growth following the pandemic and the skyrocketing cost of living, experts have warned that the UK could be heading towards a summer recession. According to research, consumer confidence is now at its lowest in years, even lower than the 2008 financial crisis. This near-record low is indicative of an economic downturn. It’s not just the UK that’s headed for trouble, either, there is a cloud forming around the global economy.

With so much instability and uncertainty across the UK, it’s understandable that many will be concerned about this news, and at The Salary Calculator, we’ll walk you through:

• What the economy is looking like right now
• How a potential recession could affect personal finances
• How you can safeguard yourself against a potential recession

Is there a recession ahead?

A recession, by definition, occurs when negative economic growth takes place across two successive quarters. According to financial forecasts, the economy is likely to shrink by 0.2% between April and June. Recently, the pound also hit its lowest level against the dollar since September 2020.

So, while it’s not imminent, experts say the risk of a recession is rising. Early this month, Deutsche Bank’s chief UK economist Sanjay Raja said: “We continue to think that the risk of recession remains on the rise,” adding: “This is something we will be tracking very closely in the coming months. Consumer confidence data is already consistent with recessionary levels.”

Commenting on the financial forecasts by the industry, Abena Oppong-Asare, shadow exchequer secretary to the Treasury, said that while the figures are “concerning,” they come as “no surprise,” referring to what she called the “double whammy” of the National Insurance increase alongside soaring energy bills.

She added: “Collapsing consumer confidence shows how the cost of living crisis is weighing down growth. How many warnings like this does the chancellor need to grasp the seriousness of the cost of living crisis?”

How might a recession affect you and your personal finances?

Recessions can have a hugely devastating impact on personal finances. Businesses, especially small businesses, typically take a big hit when a recession swoops in. This can result in companies pursuing redundancies, cutting jobs, and pausing new hires. Of course, this can have a knock-on effect on employees. Back in the 2008 recession, unemployment reached its highest rate since 1995 at 8.4%.

Of course, job losses can lead to subsequent financial difficulties, for example, challenges paying bills, mortgages, and rent payments, which can lead to individuals taking on debt to cope. Alongside this, recessions often lead to ​​reduced economic output and consumer spending falls, too.

How can you safeguard yourself against a potential recession?

With so much discussion around the state of the economy, and lots of undeniably concerning headlines, it’s likely that many are worried about what might happen to their personal finances, and will be seeking to find ways to safeguard themselves. However, it’s important not to panic, and note that there are steps you can take to protect yourself and your savings.

With increasing taxes, record inflation, and soaring living costs in the current financial climate, it may be difficult to put some money away and save. Experts, however, recommend that in the midst of a recession, people should try to build up some kind of emergency fund. Typically, common sage advice is to build an emergency fund equivalent to six months’ worth of expenses. This can be done through small contributions, and you can even set up automatic payments to inject money into your emergency fund consistently.

Another way to protect yourself in the face of a potential recession is to cut back on your expenses. Take a look at your overall lifestyle and see if you’re overspending money, or if there’s a subscription you wouldn’t miss and could cut out. Douglas Boneparth, president of Bone Fide Wealth and a member of the CNBC Digital Financial Advisor Council, says it’s a good idea to take stock of your whole life, too. He recommends individuals ask themselves the important questions: “How do you feel about your job? Do you feel safe? What is the risk in your life right now? Did you just have a child? … Are you in good health?” After taking time to reflect on one’s outgoings, creating a reasonable budget is much more doable, and it can also make clearing your personal debt a bit easier.

Some experts advise diversifying and drip-feeding investments. Gold is a go-to for some. According to Adrian Lowry, writing in The Independent, gold has been “lauded variously as a hedge against inflation, a counterpoint to a weakening US dollar, a safe haven in times of crisis, and something to hold in portfolios that are not correlated to equities, as a diversification asset.” That said, it’s also important to be aware that gold is fairly volatile and can be subject to significant price fluctuations, meaning that it can dramatically drop in value as well as increase.

On the other hand, Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, recommends that people do not shy away from investment, but if worried about investing their savings in one place, they should drip-feed investments instead. She explained that this enables you to “benefit from pound-cost averaging by continually adding to your investments through different market conditions and economic cycles.” Investment Strategist Whitney Sweeney at ​​Schroders also says that diversification “is key.”

 

Tags: 2022, investment, Personal finance, recession, savings, the economy

Plans for re-starting the economy

by Admin

It has been a turbulent few months for many of us, with jobs being cut, furloughing schemes, working from home and closure of many businesses (small and large). Last week, Chancellor Rishi Sunak announced a number of measures which are designed to help us along the road to recovery. It is going to take several months (or even longer) and things may never quite be the same – but here are a few of the measures which have been announced:

A cut in VAT on hospitality – restaurants and hotels will see the VAT on their goods reduced from 20% to 5%. For consumers, it is possible that this will mean lower prices but businesses are under no obligation to pass this saving on. They may keep their prices the same and use the VAT saving to try to repair some of the damage caused by their enforced closure over the last few months, or to try to allow for fewer customers as social distancing regulations mean that they can’t seat as many people as before.

A temporary removal of stamp duty on house purchases under £500,000 – if you were planning to move house before March 2021, this may well save you a significant amount of money. Previously, any house sold for more than £125,000 attracted stamp duty (often thousands or tens of thousands of pounds) which the buyer had to pay on top of the purchase price. Until March of next year, the threshold has been increased to £500,000, in an attempt to encourage people to buy and re-energise the housing market.

A bonus paid to employers who retain furloughed employees – if an employer keeps an employee who was furloughed on the payroll until the end of January 2021, they will be eligible for a one-off £1000 bonus. This is to encourage employers to keep people on and prevent unemployment, even if business doesn’t pick up immediately now that lockdown has been loosened.

There were several schemes announced which are intended to encourage employers to employ 16-24 year olds.

A full run-down of the measures announced is available from the BBC.

Tags: budget, coronavirus, covid-19, Economy, house prices, houses, Jobs, recession, recovery, VAT

Trying to live cheaply

by Admin

I was interested to read an article on the BBC news website today about the new benefits cap, which was trying to estimate how much money someone needs to be able to live (albeit cheaply). As well as some examples of how people can save a bit of money with cheaper options, it was interesting to me to see things that I wouldn’t necessarily have considered when trying to work out my weekly spend.

For example, they say that the average family spends £9.50 a week on furniture. Now, obviously, most people don’t buy a new piece of furniture each week, and I can’t remember the last time I did – but it is expensive and you will need to budget for some such purchases over the year. You might think that if you were living on a budget you just wouldn’t buy furniture, but it does wear out and does need to be replaced, even if it is replaced with a cheaper, second-hand equivalent.

Also clothing – not something I spend money on regularly, but if you have a job interview you will need a suit – and you’ll have to save for many weeks at a couple of pounds a week to afford it. Things like socks will wear out, shirts will get damaged – if every penny counts, it will be difficult to get replacements, even if you shop in budget shops.

Anyway, check out the link above to read the article in more detail. You might spot somewhere that you could economise!

Tags: benefits, debt, Economy, recession, recovery, unemployment

Rocky road to financial recovery

by Admin

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!

Tags: careers, Economy, inflation, recession, recovery, unemployment

Coalition pledges to affect tax

by Admin

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!

Tags: April 2011, budget, Economy, election, HMRC, income tax, national insurance, Pay As You Earn, pension, Pensions, personal allowance, recession, recovery, tax rates, The Salary Calculator