- Further conflict could push up prices and keep interest rates higher.
- Meanwhile, tariffs could damage global growth, pushing interest rates down.
- The tax and spending bill could hike bond yields, which could push annuity and savings rates up – but make mortgages more expensive.
- What should you do?
Sarah Coles, head of personal finance, Hargreaves Lansdown:
“Your future financial security rests on a number of things we can’t predict. Further escalation in the Middle East could mean inflation is on the cards. Higher US tariffs around the world could crush global growth, and if Trump decides to crack on with cutting taxes and boosting spending, then bond yields could climb again. Each factor has the power to dramatically impact your finances in a host of ways. And because it’s impossible to predict, it’s incredibly difficult to know what happens next. However, it doesn’t stop us making plans.
Conflict escalation
Conflict in the Middle East is clearly devastating for people in the region, but further escalation could have a wider impact. There are concerns over the potential damage to oil and gas fields, but the impact could be even bigger. Given that a quarter of global oil supplies flow through the narrow strait of Hormuz off the Iranian coast, disruptions could push oil prices up significantly. They have already spiked, and further conflict could make this worse.
Tariffs
The current pause on most US tariffs has made room for negotiations, but the past few months has shown us that there could be plenty more twists and turns along the way when the pause expires on 9 July. There’s always the risk that details aren’t hammered out in time, and tariffs are imposed across the world again. Even if there are deals in place, tariffs aren’t going to disappear. Forecasts for global growth have been downgraded as a result, with the World Bank expecting the worst year for global growth since 2008 – excluding global recessions.
Tax and spend
Trump’s tax and spending bill is expected to add significantly to the country’s borrowing. This has not gone down well with bond markets. Moody’s has downgraded the country’s credit rating, and bond investors have flooded out of bonds. This has pushed prices down, which automatically increases yields on bonds. The US bond market tends to drive movement around the world, pushing yields up everywhere. This has a profound impact on savings, mortgages and annuities, which use bond yields in their pricing.
Potential impact
Prices
Higher: higher oil prices wouldn’t just have an immediate impact at the petrol pumps, but if they endured, it could mean rises in the prices of everything that’s manufactured or delivered. It would put people’s budgets under horrible pressure.
In the balance: The jury is out as to the potential change in prices as the result of tariffs, because so much is still unknown. There’s a chance that companies would pass on additional costs, but this could be contained by others dumping goods in the UK because it’s too expensive to trade elsewhere.
What should you do?
In this environment, it’s going to be vital to have an idea of what you normally spend on various things – from a tank of petrol to a trolley of food. That way, when you see prices change, you know you need to revisit your budget as a matter of urgency. If you don’t pay attention, at times of rising inflation it’s easy to overspend in every corner of your finances.”
Savings rates
Mark Hicks, head of Active Savings, Hargreaves Lansdown:
Level: “The Bank of England held rates for June and is expected to cut rates in August. However, if inflation risks rise, it could decide to keep the rate on pause. This could mean good news for easy access savers, who could see rates staying higher for longer. Depending on the outlook, it could also put upwards pressure on fixed rate deals.
Lower: Global slowdown would mean the Bank of England is under pressure to cut rates faster, to support the UK economy. If it also took the heat out of inflation, it might mean rates come down faster than expected.
Or higher: If bonds are the biggest things moving the savings market, then the pressure will be on for rate rises, particularly within the fixed term markets. These are priced using bond yields, so rising yields could mean rising rates.
What should you do?
You don’t have to be across global politics and economics to make good decisions about your savings. Don’t wait around to see what will happen next, because almost anything could, and in the interim if your money is in a branch account with a high street giant, you’ll waste a fortune in missed interest. Instead, take stock today and do the right thing for your savings.
Your emergency savings safety net should be in a competitive easy access account, and any money you need for the next five years should be fixed for the periods that make the most sense for your circumstances. Don’t lose sleep over how the broader world could change while your savings are fixed: there are some decent rates out there right now for you to take advantage of. Check with online banks and savings platforms, where you’ll tend to find more competitive rates.”
Annuities
Helen Morrissey, head of retirement analysis, Hargreaves Lansdown
Higher: “Annuity incomes are closely linked to long term gilt yields and we’ve seen them soar. The latest data from HL’s annuity search engine shows a 65 year old with a £100,000 pension can get up to £7,900 from a single life level annuity with a five year guarantee. This is hovering very close to all-time highs and marks a massive comeback in a market that was very much consigned to the sidelines just a few years ago. If we see further turmoil in the markets as a result of Trump’s policies then we could see further hikes in income, though this cannot be guaranteed.
In the balance: Interest rates also play a role in pricing annuities, so there’s a chance that higher inflation will keep rates higher, and keep annuity rates elevated. However, there’s also the risk that a global slowdown will persuade the Bank of England to cut rates faster, pushing rates down.
What should you do?
You may get a pleasant surprise when you get an annuity quote from your pension provider but it’s important to look at what the market more widely can offer you – don’t just take the first quote you are offered. Different providers offer different rates so use an annuity rate search engine to make sure you get the best deal before locking into a guaranteed income for life.”
Sarah Coles
Mortgage rates
Higher: “Booming bond yields could push up the rates on fixed rate mortgages, which are partly priced according to bond yields. For the 1.6 million people remortgaging from a fixed rate this year it could be particularly nasty – especially given so many of them will be moving from rock-bottom rates.
Level/higher: If inflation rises, it’s likely to mean a longer pause on rate cuts than is currently forecast. It would mean yet more disappointment for the 7% of people on tracker mortgages and the 6% sitting on the standard variable rate, and more misery for remortgagers, because the market could price in fewer cuts and fixed rate deals could rise.
Lower: If global growth is sluggish, and becomes the Bank of England’s overriding concern, it could decide to cut rates faster than forecast. This would put downwards pressure on mortgage rates.
What should you do?
Accurate forecasting is going to be tricky, so if you are remortgaging, it pays to lock in a rate as soon as possible – a few months before your deal ends. That way, if rates rise between then and the end of your deal, you have secured a great rate, and if they fall, you can shop around for a better deal elsewhere.
It’s also a good time to assess what role you are happy for uncertainty to play in your mortgage decisions. For some people, the priority will always be the chance of the best rate possible, so a variable rate appeals. For others, the certainty of a fixed rate deal is worth the risk of possibly paying more if rates fall from here, because it gives them security over what’s likely to be their biggest outgoing over the next couple of years. The HL Savings & Resilience Barometer shows that on average, households with a mortgage have £309 left at the end of the month, and fixing avoids the risk of this being eroded by rate rises
