To say that 2022 was eventful is certainly an understatement. As the year draws to a close, it’s worth reflecting on the challenges that were presented, as well as those we anticipate having to encounter in 2023.
The start of the year
If we cast our minds back to January 2022, it felt as if the country was finally back to semblance of normal following the COVID-19 pandemic. Despite a strong peak in cases, booster vaccine uptake was high, and the world truly opened once again.
However, in February, the Russian invasion of Ukraine led to the biggest land war in Europe since 1945, and resulted in international condemnation and sanctions, the withdrawal of companies from Russia and the country’s exclusion from major sporting events.
Consequent financial instability
Consumer prices in the UK were already accelerating as demand met post-pandemic constraints, but the consequences of the war saw food and energy costs skyrocket. Add to the mix an extremely badly received ‘mini budget’ in September and over the year, the UK saw one of the highest rates of inflation since the 1980’s which currently sits at (as of November 2022) 10.7%, a slight decrease from the eye-watering 11.1% in October. Jersey saw similar rates of inflation throughout 2022. RPI currently sits at 10.4% as of September 2022; however, we’re hoping to see this number reduce in the next announcement in January 2023.
To stem the inflationary pressures on the economy, the Bank of England and the Monetary Policy Council increased the UK’s base rate nine consecutive times to what is now a 14-year high of 3.5%.
With so much turbulence, it came as no surprise that people were left continuously grappling with knowing which route to take when it came to their finances. As rates increased, we shared insight into whether 2022/2023 is a good time to consider taking a loan. The key takeaway? Higher interest rates don’t mean you can’t or shouldn’t take out a loan, but there are numerous factors to consider before doing so.
According to Chancellor Jeremy Hunt and the Office for Budget Responsibility (OBR), the UK is now in recession, with output shrinking by 0.2% in the three months to September (albeit the official definition of a recession is two successive quarters of negative growth). Regardless of formal definitions, the UK economy faces a very challenging outlook throughout 2023.
However, there are certain positives to take away ahead of the New Year. The BoE has suggested to be optimistic about inflation being close to its peak which hopefully means it will begin its journey on bringing figures back down to reach the target of 2%. Of course, how long this will take is still unknown, as are many other aspects of the country’s finances for 2023.
But what does 2023 mean for your finances?
Unless someone has a crystal ball, knowing exactly what might happen next year financially is impossible. However, the consensus suggests 2023 will see the economy in a downturned state before recovering in 2024.
Here’s a snippet of what professional services network giant, KPMG says:
“The UK economy will shrink by 1.3% in 2023, amidst a relatively shallow but protracted recession. This will be followed by a partial recovery in 2024, which could see GDP rise by 0.2%.”
“Elevated inflation and rising interest rates will continue to put pressure on households’ living standards. By the end of Q3 2022 household consumption has already fallen by 0.6% on a per capita basis and is projected by KPMG to fall by a further 3.4% by mid-2024. While a fall in savings or higher borrowing could support consumption to some degree, persistently low levels of consumer confidence could lead to higher levels of precautionary savings.”
“Companies’ margins and investment are negatively affected by rising interest rates and ongoing geopolitical uncertainties, slowing global growth over the medium term. KPMG expect overall investment to shrink by 0.7% in 2023, before recovering by 0.2% in the following year. As the economic environment deteriorates, a higher number of company insolvencies are expected.”
The outlook for the next 12 months is certainly a difficult pill to swallow. While figures for Jersey and Guernsey may not be the same of those in the UK, the Islands should still be prepared for further financial squeeze in 2023 also.”
However, we know that not everything can be put on hold for the next 12 months. Individuals and businesses alike are still going to need to make financial decisions in the New Year. Close Finance remains committed to continuing to provide support to its customers and partners through the next stage of rocky terrain.
Contact our team for a free and confidential consultation.