From gas and electricity bills to interest rates: personal finance predictions for 2022
Brits are gearing up for 2022, with plenty of Christmas turkey and debt under their belt, as well as some financial resolutions for the new year.
Unfortunately, if experts' financial predictions for 2022 are accurate, Brits can expect to be hit with higher bills as well as rising interest rates and taxes.
“We head into the year in the full and certain knowledge that either higher energy prices will push up inflation and force the Bank of England (BoE) to raise rates — or that more COVID shocks will keep a lid on inflation and growth, and rates will stay low,” said Sarah Coles, senior personal finance analyst, Hargreaves Lansdown.
“While making predictions in this kind of environment is fraught with difficulty, there are some things we can be relatively certain are on the cards for 2022,” she said.
Here are Hargreaves Lansdown’s top ten financial predictions for 2022.
1. Bills will get more expensive
The energy price cap will be reviewed and announced in February, and will kick in from April. This means there’s every chance that energy bills will rise significantly
Given the enormous rises in the wholesale price of gas, and the huge cost of company failures needing to be picked up by the industry, the cap is expected to rise by hundreds of pounds.
Read more: Financial resolutions for 2022 and how to make them stick
The cap isn’t a fixed and finite amount, it’s just a cap on the cost for the average user. It means those with big families, or large or inefficient properties could end up with significantly larger hikes.
2. Interest rates will be higher by the end of 2022
It’s difficult to see how rates could remain at 0.1% for the next 12 months, so rates will be higher at the end of the year than they are now, said Coles.
But the BoE is still juggling frailties in the recovery and rises will be slow and steady, rather than eye-watering overnight hikes
3. Brits will pay more tax
The Resolution Foundation calculated that by the end of this parliament, tax as a share of the economy will be at the highest level since 1950 — and up £3,000 ($3,975) per household since Boris Johnson became prime minister.
Tax on pay will be responsible for the lion’s share of the increases, after income tax thresholds were frozen, and the chancellor announced that 1.25 percentage points will be added to national insurance in April.
Tax on investments is also rising.
Brits who make more than £2,000 in dividends outside an ISA will face tax, and the chancellor will hike the rate by 1.25 percentage points from April.
At the same time, the capital gains tax threshold has been frozen, so if Brits realise more than £12,300 in capital gains in a single year outside an ISA, they will pay tax.
Inheritance tax is also set to rise, as a result of the freezing of thresholds in the March Budget.
Council tax is rising too, with the Budget allowing for a 3% increase.
4. Brits will be disappointed with their state pension increase
In recent years the state pension has been increased every year in line with what's known as the triple lock. This means it increases by whichever is higher of 2.5%, earnings or CPI inflation.
The end of furlough pushed earnings data to an artificially high level and so the decision was taken to suspend the triple lock for one year and give pensioners an increase of 3.1% in line with CPI inflation.
However, since the decision was taken, inflation has increased massively, leading to concerns that pensioners who rely on the state pension will struggle to meet rising bills over the coming months.
“The government has pledged to reinstate the triple lock next year but given its huge cost to the exchequer there is a chance that in difficult economic circumstances it can be suspended again. What is needed is a longer-term view of the state pension and how it can operate sustainably,” said Helen Morrissey, senior pensions analyst, Hargreaves Lansdown.
Read more: 11 tips on how to tick off your pension to-do list before Christmas
5. Brits will still pay a lot for social care.
In September the government announced its social care plan. The proposals cap the amount someone pays for their personal care at £86,000 and also raises the floor at which people get help paying for care from £23,250 to £100,000 of assets from 2023.
The cap helps provide a little more certainty, but it only covers personal care and people still face covering big costs for accommodation and bills.
6. It’ll be a quieter year for property
“After the record levels of 2021, we’re expecting the housing market to die down,” said Coles.
No new stamp duty holiday, lower levels of mortgages agreed and fewer properties on estate agents’ books is likely to depress sales numbers.
Read more: UK mortgage lending surges to record high of £316bn for 2021
When it comes to house prices, much will depend on what happens to inflation and interest rates. But unless there are serious unexpected shocks, there is likely to be a slowing of price rise.
7. Brits will end up borrowing more on cards and loans
“This could be pretty much nailed on as a prediction for years, and then the pandemic turned everything on its head,” said Coles.
In October, the spend on credit cards was still down 3.2% in a year and other loans down 0.5%. However, since the economy started opening up again in April this year, there has been a return to Brits spending more than they are repaying.
Assuming the UK doesn’t announce another lockdown to deal with the new Omicron variant, Coles expects to see the growth of consumer credit kick in again.
8. You will be offered a guidance appointment when you come to take your retirement income
From June 2022 people first accessing their retirement income will be offered an appointment with guidance service Pension Wise.
These 45-minute sessions will take them through the different options on offer and should help them to make better informed retirement decisions.
“It is a huge positive but currently providers only offer the appointment at the point the customer is choosing a retirement income product,” said Morrissey.
“Ideally, we would like to see these appointments offered earlier in the process while the customer is still exploring their options.”
9. You may well have an unexpected bill out of the blue, and there’s a good chance you’ll struggle to pay it
In research Hargreaves Landsdown did just before the pandemic hit, 44% of people said they’d faced an unexpected bill in the previous 12 months, costing an average of £1,269 — and the intervening period has brought even more uncertainty than ever.
ONS figures from November this year found that 27% of people couldn’t meet an unexpected bill for £850 out of the blue.
“It’s why we should all be working towards an emergency cash savings safety net of 3-6 months’ worth of expenses during our working life,” said Coles.
10. New banks and building societies will offer the best savings rates – but most people won’t use them
The best way to fight the impact of inflation on your emergency savings, is to put your money into newer online banks or building societies offering competitive rates.
According to a survey commissioned by Hargreaves Landsdown in September, only 11% of people choose to do this — while 40% stick with whatever high street giant they hold their current account with.
