This week’s UK budget, as with most budgets, divided opinion. Some feel that Chancellor Hunt missed an opportunity to give greater support to the business sector. Retailers, for example, say there has not been enough done to support them as businesses grapple with sky-rocketing energy prices. Additionally, as reported in the Independent, the UK fiscal watchdog – the Office for Budget Responsibility (OBR) – predicts that UK households are inches away from the biggest fall in living standards on record.
However, there were some speckles of light from within the budget. It has been confirmed that the UK has narrowly avoided a technical recession. The economy is predicted to shrink less than expected and inflation is forecast to fall swiftly between now and the end of the year.
The current UK rate of 10.7% is said to plummet to only 2.9% by December 2023, almost meeting the Government target of 2%. Jersey’s inflation rate currently sits at 12.7% and Guernsey’s at 8.5%. The inflationary trend for the Islands usually follows that of the UK, so we should also begin to see these rates fall.
What does this mean for your finances in the Channel Islands?
For months, the Bank of England Base Rate has been increasing in an effort to curb inflation. With record figures in both the UK and the Channel Islands, the impact such continued high inflation has been having on households and businesses has been near-impossible for some to manage.
People’s money simply doesn’t go as far as it used to, pushing more families close to the breadline and many, beyond it.
Alongside this, the cost of borrowing has risen steeply. Loans subject to a variable rate of interest have seen a hike in repayments and many have been wary of taking out new loans because of the ongoing economic volatility. As we entered 2023, there was light at the end of the tunnel.
The forecasts suggested that Base Rate would likely peak at 4.5% in the middle of 2023. However, the budget yesterday, coupled with the collapse of Silicon Valley Bank earlier this month, gives the Monetary Policy Committee (MPC) a lot of food for thought. Some predict that there is a 50% chance the UK Central Bank may not increase the UK Base Rate further when it meets next week.
What might that mean for borrowing?
If Base Rate stabilises and begins to fall, borrowing should become cheaper. Monthly loan repayments may reduce for new customers or those with loans subject to a variable rate. New customers may also be able to borrow more money than during times of high interest rates because of the reduced debt servicing costs and meeting lenders affordability criteria.
Continue to be cautious
Of course, just because Base Rate may decrease over the coming months doesn’t mean now is the time to stop being cautious with your money. There are still many factors at play that may impact your financial situation, such as continued high energy bills and cost of living. It’s suggested that you continue to work with responsible lenders who will assess your overall financial situation to ensure, at the time of borrowing, you’re not stretched beyond your means.