Outlook for 2018: Playing the long game

Posted by Liz Rees in Market commentaries category on 22 Feb 18

If 2017 was a tough year for consumers, it seems 2018 could bring much more of the same. There have been some positive signs for the economy, such as a continuing fall in unemployment. However, rising inflation and Brexit negotiations are causing ongoing uncertainty. In addition, wage growth (2.4%) continues to trail inflation (3%), while interest rates, which experienced their first increase in 10 years, are still at just 0.5%.

So, how are you feeling as a result of this economic uncertainty? How confident are you in the UK’s economic outlook? Where are you looking to boost your finances? 

We commissioned a leading online research firm to unearth answers to these questions. This is what we found: 

  • 35% of respondents say they feel less confident about the outlook for the UK economy – a figure that has increased over the past four years
  • 28% of respondents say they feel worse off than they did 12 months ago.
Confidence in the economy 

Financial SituationSource: Opinium research

Concerns over the wider economy are having a big impact on how people feel about their personal finances and may be increasing the appeal of so called ‘safe havens’, such as cash ISAs and savings accounts. However it is important to remember that one of the best ways to cope with uncertainty is to hold a diverse portfolio of stocks and shares and to make the most of your £20,000 ISA allowance. 

Savers reliant on interest and wage growth for financial boosts 

Amid ongoing uncertainty, one of the key questions you might be asking yourself this year is: “Where could potential boosts to my finances come from?” 

Our research shows that 28% of consumers believe the biggest boost to their finances will come from a rise in interest rates, suggesting a reliance on savings accounts or cash ISAs. This is followed closely by wage increases at work (27%) and a change in the amount of tax they pay (22%).

However, interest rates only rose to 0.5% in 2017, the first rate rise in 10 years, and inflation is currently at 3%, meaning that savers are facing a 2.5pp gap. Wages may have experienced a slight uptick, with the latest figures showing growth of 2.4% between September and November 2017 when compared with last year; but, again, they fall well behind inflation*.  The areas where people are hoping to see a boost to their finances are therefore unlikely to deliver. 

Boost finances 

Source: Opinium research (Respondents could select up to three options)

So, what can savers do? An approach worth considering is to play a longer-term game. Increasing your exposure to the stock market may sound daunting when the economic outlook is mixed, but it’s important to look beyond the current environment and focus on your future savings goals instead. Continuing to regularly save into a well-diversified portfolio will help smooth out gains and losses in the long run. 

Opinium Research conducted an online survey of 2004 people across the UK between the 12 to 14 December 2017

*ONS UK labour market: January 2018 https://www.ons.gov.uk/employmentandlabour