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What lockdown 3.0 means for personal finances

by LLB Editor
6th Jan 21 12:22 pm

Chances of an interest rate cut in 2021 are now at 50%, according to research.

The 3rd March Budget now looks less likely to include tax rises and we can expect another bulge in cash savings.

But the lockdown will mean greater financial hardship for many while scams activity will also rise.

Laith Khalaf, financial analyst, AJ Bell: “Markets are now pricing in a 50% chance of an interest rate cut this year, based on the economic damage that will be done by another lockdown. That’s up from 30% just a week ago. The next Bank of England policy meeting is at the beginning of February, so the MPC members have time to take a deep breath and see how the next few weeks go.

“The sanguine response of the stock market suggests there is still a high degree of confidence that vaccines will make this lockdown a final push for the line, so much will now depend on the roll-out of immunisations, as well as the effect of social restrictions on the spread of the virus itself.

“The Prime Minister has signalled that we are looking at the back end of February at the earliest before restrictions can be eased. That puts the Chancellor in a tight spot, seeing as the Budget has been scheduled for 3rd March. An economy that is just beginning to emerge from lockdown is not going to be in great shape to bear the tax rises the Treasury has to push through to balance the books.

“The new lockdown therefore means less chance the Budget will be a platform for fiscal repair and more chance it will be about keeping the wheels of the economy turning. But while tax rises may be delayed, they are still very much in the post. With the end of the tax year now in sight, savers shouldn’t look a gift horse in the mouth by spurning their annual ISA and pension allowances, which run out on 5th April.

“Of course, a renewed lockdown will increase financial pressure on many businesses and individuals. The FCA found that the first national lockdown pushed 2 million people into financial difficulties and we can expect that trend to raise its head again. As we know the pandemic has created a two-tier nation though, as those who have kept their jobs and income have found their finances improved by the imposed frugality of lockdown. This means we can expect cash accounts to bulge once again, as spending options disappear.

“One thing which will be in plentiful supply in the coming weeks will be time and so lockdown at least provides an opportunity to conduct a root and branch review of your finances to really get a headstart in 2021. Hopefully getting this out of the way will leave you with more time later in the year to focus on more enjoyable activities, as and when they become possible again.”

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