10 personal finance predictions for 2023

Susannah Streeter, Senior Investment & Markets Analyst, Sarah Coles, Senior Personal Finance Analyst and Helen Morrissey, Senior Retirement Analyst at Hargreaves Lansdown open the crystal ball to 2023.

1. Inflation set to stay sticky

Susannah Streeter:

“Large rate hikes now seem to be in the rear view mirror, as the data leak indicates that the rate of price growth is slowing. But although inflation You may have made it to the top, that doesn’t necessarily mean it’s a smooth path down from here.

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There is still the potential for a lot of pain ahead, as persistently high prices continue to cause severe headaches for the economy. While a recession will reduce domestic demand, many of the inflationary pressures have been external, and with Russia’s offensive continuing in Ukraine and energy prices remaining unpredictable, it is uncertain how quickly prices will fall.

The Bank of England has predicted that inflation will be around 5% by the end of 2023, but as always with forecasts, there are no guarantees.

2. You will pay more taxes

Sarah Coles:

“The round of tax hikes in the Fall Return it turned out to be miserable reading, but even before that we were in favor of higher tax bills, because freezing income tax thresholds means wage increases will push more people to pay more taxes. , and will push large numbers of people to pay higher taxes. tax bands.

These types of hidden taxes tend to go unnoticed, but they can have a far greater impact than a tax increase. The Institute for Fiscal Studies estimates that freezing personal tax thresholds will reduce household income by an average of £1,250 by 2025/26.

On top of that, the Autumn Declaration brought bad news for higher earners, as the additional fee threshold was lowered from £150,000 to £125,140. For those who run their own business and pay themselves in dividends, and for investors with large portfolios outside of an ISA or pension, there is also the threat of more taxes on dividends as the allocation is reduced to the half in April.

For those investors, there is also the risk of capital gains tax after the allowance for this is halved in April as well. When you add in the top council tax and the frozen inheritance tax bands, we’re getting stung by more taxes on all sides.”

3. Energy prices will remain volatile

Susannah Streeter:

“Uncertainty comes in waves in energy markets as the rough tides of supply and demand lift the price of oil but keep a cap on big profits. There are expectations that less crude will be available to buy given the $60 cap on Russian oil, which means it can’t be shipped using EU or G7 tankers, insurance or lines of credit, unless it’s below of that price limit.

However, Russia has vowed to circumvent that by leasing tankers elsewhere, and significant flows seem likely to be diverted to more friendly countries.

OPEC+ has adopted a wait-and-see policy before introducing any further changes to its already lower production targets. It is also unclear how the Covid situation in China will develop. Investors have held on to the hope that there will be a further relaxation of strict pandemic policies.

A quick turn to Porcelain unlikely given that the expected rise in infections will be another big challenge to navigate, and once the economy reopens, demand for oil and gas is expected to rise again. Gas storage facilities in Europe, which had been filled to over 90%, are already shrinking as the cold snap continues, and the energy security impact may have been delayed, not averted.”

4. And your energy bill will increase

Sarah Coles:

“Through wholesale power price volatility, the power price guarantee will keep a cap on power prices until 2023. However, annual bills for the average user will continue to rise to £3,000 a starting in April, and we will lose the universal lump sum. payments at that point too.

It’s a long way short of the horrors we might have expected without the guarantee, and there will also be additional cost-of-living payments for those with proven benefits, retirees, and those receiving specific disability benefits, which should help those who will struggle against the majority with higher bills. However, for average incomes, we know we will get less help with higher bills.”

5. Mortgage interest rates may fall

Sarah Coles:

“Lower inflation expectations are good news for borrowers, because even though interest rates are expected to continue to rise early next year and hit around 4.5%. assuming nothing unexpected is lurking in the coming months, they are expected to fall again soon as the recession takes hold.

These lower-than-expected forecasts are already being reflected in lower fixed-rate mortgages, and we’re likely to see them drop further.”

6. Savings rates may also fall

Sarah Coles:

“For savers, the news is less positive, because those expectations for lower rates have already caused some of the more competitive fixed-rate savings offers to be withdrawn, so it’s likely we’ll see them wane as we move toward 2023.

However, the good news is that with inflation forecast to be around 5% by the end of next year and below 2% in 2024, there is a chance that the best two-year solutions could still outpace inflation. ”.

7. A housing market recession is likely

Susannah Streeter:

“There will be some major changes to the mortgage market next year when lending plummets in the face of the cost-of-living crisis. Affordability is already taking a hit from soaring borrowing costs, making people more hesitant to take the next step on the housing ladder.

UK Finance predicts property transactions will fall by more than a fifth over the course of the year. This will see a return to pre-pandemic debt levels, but with buyers hibernating as the market freezes, house prices are set to fall.

There is still hope that the relatively high employment and low housing stock will prevent a prolonged recession. However, now confidence has taken a hit, buyers are not going to rush back into the market, and there is a risk that a deeper drop is on the cards.

The US housing market heads into 2023 still in correction territory, and with optimism fading, it could spell further fallout for the economy, as recession triggered by price declines has historically been shown to of the house is deeper.

In China too, a house of cards of ownership has yet to fully stabilize, despite recent efforts by authorities to goad banks into loosening lending criteria.

8. There may be less positive news for employment

Sarah Coles:

“We have become accustomed to a buoyant job market in recent years, so more people have had job security and many alternative options. The picture isn’t expected to change radically overnight, but we’ve seen unemployment rise slightly and vacancies drop in the latest set of numbers, and once the recession takes hold, we may see more. uncertainty and insecurity in the labor market”.

9. We will continue to debate the triple blockade of state pensions

Hellen Morrissey:

“The decision to reinstate the triple lock on the state pension was greeted with a sigh of relief from retirees who were hoping for an extraordinary 10.1% increase in their state pension from April. Many saw the decision to suspend it last year as a first step toward getting rid of it for the long term, and the mixed messages leading up to the mini-budget certainly didn’t help.

Its return was announced during the Autumn Declaration, but it remains a divisive policy with many believing it is unfair to younger generations and that the rising cost of providing the state pension will continue to fuel debate over the long-term future of the triple lock. ”.

10. We could see further increases in state pension ages

Hellen Morrissey:

“The state retirement age has increased rapidly in recent years and is currently 66 for men and women, with a change to 67 by 2028. The timetable states that the change to 68 should occur by 2046, although the government He has been open in saying that he thinks it should happen sooner, by 2039.

The schedule is subject to a state pension review due to be released early in the New Year, and the author needs to balance managing the staggering costs of providing the state pension against the fact that the rapid increase in longevity is slowing. and that many people simply cannot keep working that long.

Rumors are already circulating that the timetable could be pushed even further forward, perhaps as far as 2033, a move that would cause consternation among many older workers.”