There are signs that the UK economy is coming off the boil. What can you do to avoid a slowdown or recession? Read these tips, for a start!
I get the feeling that, despite strong headline figures on the state of the UK economy, all is not well below the surface.
Don't get me wrong: I'm no economist, nor am I any kind of "expert" on the UK economy! But I've worked in financial services since the Eighties, and I've developed a gut feel about personal finance that I've learned to trust. And at the moment, my gut is telling me that people are starting to feel the pinch.
I don't know why I'm getting these vibes, but I guess that it's a combination of hearing anecdotal evidence and reading official statistics. For example, I keep hearing more and more stories about people struggling with debt - and giving out more and more copies of my Getting Out of Debt guide.
Also, I've noticed that people seem to have lost confidence in unlocking the wealth in their homes. Here are the latest figures for mortgage equity withdrawal (MEW) borrowing against homes to spend money elsewhere:
Mortgage equity
withdrawal
2003 to 2004 | | |
|---|
| Quarter | MEW
(£millions) | % of post-tax
income |
| Q1 2003 | 12,505 | 6.7 |
| Q2 2003 | 11,956 | 6.2 |
| Q3 2003 | 13,845 | 7.2 |
| Q4 2003 | 16,817 | 8.6 |
| Q1 2004 | 15,525 | 7.9 |
| Q2 2004 | 13,724 | 6.9 |
| Q3 2004 | 11,297 | 5.6 |
| Q4 2004 | 6,933 | 3.4 |
So, MEW collapsed from roughly £17 billion in the last quarter of 2003 to just £7 billion in the final quarter of last year. Since the second half of 1998, we've splurged a staggering £187 billion of our housing equity, with over £55 billion being withdrawn in 2003 alone. Yikes! But it's very telling that, however much optimists and vested interests claim that house prices will stabilise or continue to rise, homeowners clearly no longer have an insatiable appetite for MEWing (unlike cats!).
Obviously, without this flood of money washing down the high street, retailers are going to suffer. It's started already: in recent weeks, there has been a spate of disappointing news and profit warnings from large retail groups and sellers of consumer goods (with the mighty Tesco being a notable exception).
Furthermore, when we worry about our financial security, we respond by saving more and it appears that this process has already started. When this government took office in 1997, we were saving about 9½% of our income. Last year, this figure fell to about 5½%, but it has started to rise. And the bad news is that when we're saving hard, house prices tend to fall and the two appear to be strongly connected. Uh-oh!
So, armed with this and other information, I've reached the conclusion that life is set to become notably harder for a sizeable proportion of the UK population. Still, there'll be no shocks until after the General Election, of course! So, if you knew that a hurricane was on its way, and that it might or might not wreck your home, what would you do? Would you nail boards over the windows, remove all valuables to a safe place and set up a survival zone in your basement? Or would you say, "Don't worry, it won't affect me, I'm safe as houses"?
Personally, my view is that the best approach to adopt is to hope for the best and prepare for the worst. So, if the nation's finances are about to take a header, I'd be looking for ways to strengthen my personal finances. For example, I'd begin to cut my expenses, pay down my debts, increase my income, reduce my tax bill, and live well within my means. Here are four articles to help you to get started with doing the same unless you'd prefer to sit back, unprepared, and watch the next hurricane arrive, of course!
More: Avoid paying interest with a 0% credit card | Find a tip-top savings account.
