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Financial Predictions

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In a year dominated by talk of Brexit and political promises amidst a general election, it has been difficult to predict changes to the economic climate in 2019, never mind 2020.

There has been a general uncertainty surrounding the future of the UK which has complicated matters, meaning that financial predictions have been a case of ‘wait and see what happens’. Like driving on a foggy day, we have a somewhat restricted view of what is ahead.

However, since we’ve already seen the reaction to certain announcements and how this has affected the value of the pound for example, this should prepare us to at least make some sort of prediction for 2020.

We’ve put together an end of year summary for 2019 to go over major events and how they have affected the economic climate, followed by our financial predictions for 2020 and what we can expect to see in the year ahead.

What events had an economic impact in 2019?

There are several key events in 2019 that have added to the current economic climate we find ourselves in, whether it has been uncertainty from Brexit or a shortfall in productivity leading to slow economic growth.

We’ve included certain events or trends in 2019 to help summarise how they have had an effect on the economy and whether they’re likely to continue to have an affect into the new year.

Brexit

Brexit has certainly dominated in the headlines and in public conversation, and despite other parties opting for a traditional approach discussing other issues in varying manifestos, it was Brexit and the Conservatives promise to “Get Brexit done” which sealed the election result in 2019.

It has now been officially extended twice, meaning that the promised date to mark our exit from the EU has been planned for and delayed already. There was even 50p coins printed for the 31st October that would have commemorated our exit, which had to be melted down instead once the decision was made to delay.

Despite Boris Johnson’s entire campaign being based on getting Brexit done in 2019, it’s unlikely that it will be complete until late 2020 or 2021, even though the current exit date is 31st January this year. This is due to a transitional period that is likely to delay it for at least a year, though this is very much an estimate. The economic impact will be further uncertainty until it is finally over the line.

General election

The general election that occurred in December 2019 had a favourable result for Boris Johnson and his Conservative party, who came out with a clear message in favour of Brexit. This turned the tide of voters, with the result being a Conservative majority government.

Having an outright majority of 80 would mean a much more stable, majority government who would be more likely to pass important legislation. This is opposed to a minority government who would struggle to get enough votes to pass laws and important changes in the UK.

The result of this was an immediate rise in the value of the pound, indicating a strengthening of the UK’s position, economically and politically.  This will hopefully mean a longer period of stable government, but the outcome of Brexit could still undermine this in 2020.

Shortfall in productivity

An in-depth report released by PWC in Nov 2019 indicated that the UK is falling behind other EU countries economically, mainly due to a shortfall in productivity. The data they’ve presented shows that our average output per worker is lower than other comparable countries such as Germany, Sweden and France. One of the highlighted reasons is a lack of investment in relevant training by big businesses and less opportunity in general for workers to enhance their existing skillset.

The knock-on effect is that we are seeing an extended period of slow economic growth in the UK, whereas other more advanced economies are managing to grow at a much quicker rate. The report concludes by saying that if we can close this gap by focusing on training existing workers, it will lead to a boost in UK GDP.

Slow economic growth

According to a BBC report in November, the UK economy has slowed to 1%, which is the lowest since 2010. This is after a third quarter growth of 0.3%, which effectively stopped the country from slipping into another recession.

As mentioned above, this is due to the uncertainty of Brexit extensions and the shortfall in productivity identified by the PWC report, amongst other factors. Whilst it isn’t quite a financial crisis, it has still been a worrying period for the economy, especially with suffering industries such as British Steel bearing the brunt.

Big businesses leaving the UK

There have been a swathe of businesses relocating abroad in 2019, with the blame firmly lying at the door of Brexit, though there might be other contributing factors at play. Amongst the list are Dyson who have moved their HQ to Singapore, Barclays who have moved £166bn of assets to Ireland, Honda who have already closed their plant in Swindon and Ford who have closed their plant in Bridgend.

There have also been several closures from big businesses in 2019, indicating the decline of the high street, as well as trouble for other sectors too. They include Thomas Cook, Mothercare, Jessops, Forever 21 and Debenhams who have gone into administration but still have many stores still open.

This has added fuel to the fire of Brexit uncertainty, pushing more doubt into the economy, as well as public consciousness.

Financial Predictions for 2020

Unlike some predictions for 2020, financial predictions are made with a basis in upcoming trends and previously announced legislation that will affect certain aspects of the UK economy.

Of course, there will always be wider political and social events that will have a gradual effect on spending habits and borrowing, but for now we can concentrate on predictions we can say for sure will be occurring in 2020.

Take a look at our financial predictions for 2020 and what you may expect to see in the foreseeable financial future.

This article will be updated during 2020 to reflect any changes or news that may have a significant effect on the content.

Brexit uncertainty will continue throughout 2020

Unfortunately, Brexit will continue to overshadow proceedings but at least we can say with some degree of certainty that the deadline is at least in sight. However, the deadline does not mean the end by any means.

Even if the current Brexit deadline of 31st January is adhered to, there will still be a transitional period that will last for a significant time after this time. This vague amount of time could be a year or more as certain legislation is put into place and the withdrawal agreement is given time to be implemented properly.

Overall, this means that we won’t see the back of Brexit for a while, and even when it is deemed that everything is set in stone, you can be sure that further changes will still need to be adopted as these new laws are given time to bed in. That means further uncertainty in the market for a while.

Shrinking 0% balance transfer term

The recent trend in balance transfer credit cards is the shrinking terms that come with a 0% interest period. Whilst these offers usually fluctuate, these terms have been reducing in overall length for some time now and are not expected to pick up anytime soon. It is now at an average of 17 months, which has reduced from 43 months in Jan 2017.

This means that borrowers who are thinking of taking out a new balance transfer credit card will find they won’t have as long until their 0% period finishes, which is ideally when they should be reducing their debt to £0.

In practice, it therefore maybe worth getting a balance transfer card sooner rather than later, as the 0% period could get better before it picks up towards the end of the year. If you can get in at the right time, you may get a preferable deal compared to a few months’ time.

Car Insurance Whiplash reforms

There are planned legislative changes going ahead in April 2020 that aims to stamp out bogus insurance claims that cost the motor insurance industry a reported £2bn every year.

These so-called “Whiplash Reforms” are coming on the back of the Civil Liability Act of Dec 2019, which should translate to lower premiums for customers looking to insure their car in 2020. More specifically, the reform will reduce the financial compensation for injury by setting a fixed amount payable for injuries lasting less than two years.

Therefore, if you’re looking for car insurance and are lucky enough to be renewing after April, then you might find yourself saving money compared to customers looking prior to April. This makes a change to car insurance prices that have been on the rise since 2012, and should result in welcome savings on car insurance for those in the immediate aftermath of the reforms.

Insurance claims linked to Extreme Weather on the rise

While extreme weather is often inconveniencing for some, there are many people that are severely affected by it, especially in the case of flooding. But this can also be the same for freezing conditions and heatwaves, which can disrupt the lives of regular people and even ruin businesses depending on how extreme the weather is.

For example, the extreme freeze in 2018 led to a rise in insurance claims to the tune of £194 million over 3 months due to burst pipes. In the very same year there was also a heatwave, which cost insurers £64 million for cases of subsidence reported during the period.

The knock-on effect in this case is there are more people making insurance claims for flood-damage, burst pipes and so on, driving up premiums for home insurance. With increased instances of extreme weather linked to climate change in the past few years, there is potential that the weather may be responsible for rising premiums into 2020.

 

Sources:

https://www.ft.com/content/1ee3b0de-20cb-11ea-b8a1-584213ee7b2b

https://www.pwc.co.uk/services/economics-policy/insights/uk-economic-outlook.html

https://www.bbc.co.uk/news/business-50373505

https://news.sky.com/story/british-steels-chinese-suitor-in-120m-government-funding-talks-11890470

https://metro.co.uk/2019/09/23/companies-collapsed-moved-abroad-since-brexit-10795029/

https://www.theguardian.com/money/2019/apr/04/car-insurance-prices-fall-after-clampdown-on-bogus-whiplash-claims

https://www.independent.co.uk/money/spend-save/home-insurance-flooding-extreme-weather-storms-cold-weather-boiler-water-damage-a8968156.html

Robert Bester