After almost two years living in very unpredictable times during the coronavirus pandemic, it’s understandable that many people are unsure about what 2022 has in store, especially when it comes to the economy. That’s why we’ve put together some predictions from key figures in the business and finance sector.
Interest Rates and Inflation in 2022
Following the recent decision by the Bank of England to raise UK interest rates to 0.25% has taken many City commentators by surprise. The decision was made after the latest inflation data showed th eUK’s cost of living had grown by 5.1% in a year- the highest level in more than a decade.
Paul Craig, portfolio manager at Quilter investors has predicted that interest rates will be going up in 2022, saying “the Bank has already started the process of moving rates slightly higher than the rock bottom levels seen during 2021 and we expect further hikes next year as inflation continues to bite.”
Graham Bishop, chief investment officer at Handelsbanken described the issue of inflation as distracting, predicting that trends in 2022 will allow central banks to refrain from responding combatively. “Over the course of 2022, inflationary pressures should fade as supply chains normalise, commodity price rises ease off and wage inflation of COVID-19 sensitive areas begins to fade.
It is worth noting that inflation is measured by comparing prices in the most recent time period to prices in a previous time period. This means prices in 2022 will be compared to elevated prices seen in 2021, which should automatically create lower inflation readings ahead.” He added.
Energy Prices
The return of many sectors to work following the 2021 lockdown has caused the demand for energy to skyrocket, leading to a spike in inflation figures. Not only have the soaring energy prices severely impacted almost 30 UK energy providers over the last year, they’ve also hit consumers hard with sharp rises to their gas and electricity bills.
According to predictions from Dr Craig Lowrey, senior consultant at energy analysts Cornwall insight, we shouldn’t get our hopes up for improvements in the year ahead. He said “As a result of the continued increase in gas and electricity wholesale prices, our forecast for the default tariff price cap has risen to approximately £1,800 per annum”
In October 2020, the current cap of £1,277 came into force, meaning Lowrey estimates an increase of nearly £600. The new price cap will be announced by energy regulator Ofgem in February 2022 and will take effect in April.
Insurance
2022 marks an important change for car and home insurance. Insurance regulator, the Financial Conduct Authority, is introducing new rules that will put an end to ‘price walking’. This is when insurers offer low prices in order to attract new customers and then raise them at each renewal that follows.
Consumer finance expert at analysts Defaqto, Brian Brown, has offered some insight into what will come. He said, “From January, renewing customers will be charged the same price as new customers, so loyal customers should see premiums coming down in future. It remains to be seen just how insurers will react to this, though without a doubt there will be less to be gained by shopping around each year.”
This means customers will likely have to search harder in order to make the same major savings as before.
Tailored Policies
When it comes to car insurance, Freddy Macnamara, founder and CEO of Cuvva, predicts that this could be the year for fairer car insurance premiums. He said “We’re going to see a shift in perceptions around premiums that are based on driving behaviours. There have been some great advancements in technology.
More insurance companies are going to want to offer unique, tailored prices and policies based on an individual’s driving profile instead of antiquated averages because it’s fairer. For consumers, it means that, the better they drive, the less they’ll pay, giving them far greater control over their car insurance.”
However, predictions for the life insurance market are less optimistic. Chairman of LifeSearch, Tom Baigrie, thinks 2022 will be a challenging year. “While insurers and intermediaries alike have coped really well with the pandemic, we expect the huge NHS backlogs in preventative treatment to cause more deaths and critical illness in particular.
Although prices for life insurance and critical illness cover have not yet risen overall, I expect they probably will through 2022, particularly for older lives. It would be the first time in 30 years that the cost of life cover has risen.”
Property and Mortgages
During the pandemic, the demand for homes soared as homebuyers rushed to benefit from the government incentives such as stamp duty holidays which came to an end in Autumn 2021. According to Nationwide, UK average house price growth has been around 10% over the last year.
Estate agent Savills says they expect the ‘North-South’ value gap to continue to shrink during the next five years as affordability constraints slow price growth in some of the more expensive markets close to London.
Lucian Cook, Savills’ head of residential research, said “After such intensity in the market and without the imperative of a stamp duty holiday deadline, we know that there’ll be less urgency in the market from 2022. Indeed, we have already seen three-month on three-month house price growth slip back from 3.9% at the end of June 2021 to 1.7% at the end of September. With the prospect of inflationary pressures persisting in 2022, we expect price growth in the near term to be somewhat more muted than we have seen of late.”
Investing
The UK’s FTSE 100 index of leading companies saw a 14% rise in 2021, which is a great 12-month return for stocks made of large and multinational businesses. However, when it comes to predictions for the year ahead, investment professionals have mixed opinions.
Alex Harvey at Momentum Global Investment Management predicts positive things for the year ahead. “In spite of recent headlines around the emergent Omicron variant, there are plenty of reasons to be optimistic for 2022. Earnings have continued to surprise as the economic rebound continues and, while expectations are high for next year, we are seeing strong data to support future growth.
UK equities remain discounted in aggregate having failed to match pace with the US over the past year. For value investors there is plenty to like and, with a good chunk of the 2020 dividend cuts having been reinstated, it is one of the better income-paying bourses.”
On the other hand, Russ Mould, investment director of AJ Bell, said investors should be wary, “No investor, no politician and no central banker knows what is coming next, nor whether inflation, stagflation or deflation will result from the combination of the pandemic, lockdowns and supply-chain chaos on one side, and massive amounts of fiscal and monetary stimulus designed to boost demand on the other.
As a result, going ‘all in’ on one investment scenario is probably not going to be a good idea. Portfolio construction will need to address a range of outcomes as, frankly, anything is possible.”
Cryptocurrencies
In 2021, UK finance regulator, the Financial Conduct Authority, paid much more attention to the crypto asset space and published several statements in relation to cryptocurrencies that warned investors of the risk posed to their entire capital when trading crypto assets such as Bitcoin and Ethereum.
However, CEO of Fast Future, Rohit Talwar, has positive outlooks for crypto. “In terms of crypto economy participation, market growth will be driven by greater investment by financial institutions, corporate crypto acceptance and increasing balance sheet holdings, and easier access through payments providers such as Mastercard, Visa, and PayPal. By the end of 2022, user numbers will rise from over 300 million to 600-900 million globally, and from 3.3 million to over 5 million in the UK.”
If you’re unsure about what 2022 has in store for your business or industry, reach out to Ryans for expert business planning. For more of the latest financial advice, news and updates, why not check out our handy blog?