We're not saying it's going to be a good year, but some things should get slightly less bad.
When it comes to our money, 2022 was a bit of an annus horribilis.
It felt at times like every week would bring some new drama which would put our finances under ever greater strain.
And while it is true that 2023 will inevitably be tricky as we try to deal with some of the repercussions of the last year, there is some cause for hope that things are about to get a little bit better (or slightly less bad, depending on your outlook).
Inflation should fall
Perhaps the biggest factor in the money worries any of us have at the moment is inflation. The cost of seemingly everything we buy has been increasing at rates not seen in four decades.
That rate has meant that even if you have been able to secure a decent pay rise ‒ and plenty of people have done just that ‒ you may still be worse off at month end, given the increases to your outgoings.
High inflation is also bad news when it comes to savings accounts. Ultimately, if your savings account isn’t paying an inflation-beating rate, then your savings are losing value in real terms.
As we have pointed out, even with savings rates increasing substantially over the last year, they are now so far behind inflation that savers are essentially even worse off.
There is some good news on the way though, in that inflation is expected to drop this year.
Indeed, the Office for Budget Responsibility reckons that inflation is likely to be just 3.8% in the final quarter of the year, providing our finances with some sorely needed respite.
Falling energy costs
One of the big drivers in that rate of inflation has been our energy bills.
The amount that we have to pay for our gas and electricity has increased substantially over the last few years, to the point that the Government has had to step in with the Energy Price Guarantee.
The guarantee freezes the unit cost of gas and electricity, with the initial lock lasting until April 2023 and means that the average household would pay around £2,500 for their energy.
The unit prices are being increased from April 2023, to the point that the average household will pay £3,000.
However, there’s optimism that we may actually see energy bills drop below that point this year due to the falls seen in the wholesale market costs of energy.
These falls will take time to filter through into our own energy deals, due to the way that the energy market works, but forecasts from Cornwall Insight over where the energy price cap will be set (since the cap is still a going concern, even with the price guarantee) suggest that it may drop to £2,800 for the second half of the year.
Obviously, that’s still far more than any of us are used to paying, and will be enormously difficult for many households to manage, but it provides some hope that energy bills may be on the way down over the longer term.
Keep your bills in check: low-cost tips for cutting your energy usage
Have mortgage costs peaked?
The latter few months of 2022 saw absolute chaos in the mortgage market.
The Kwasi Kwarteng mini Budget was such an unmitigated disaster, that mortgage lenders withdrew their entire product ranges ‒ in some cases with virtually no notice ‒ and repriced them much higher.
For those who had not yet secured a mortgage offer, it meant the prospect of substantially increased monthly repayments, potentially at levels that were simply unaffordable.
However, what’s really interesting is that since that initial repricing peak, lenders have started to drop their rates.
The swap rates they pay when securing the funds which they lend out through mortgages have been on the way down, and that has resulted in pricing becoming more competitive, even at a time when the Bank of England has continued to increase the Bank Base Rate.
It’s been a useful reminder of the fact that swap rate movements, rather than Base Rate changes, are the big driver in mortgage rate changes.
And that suggests that even if this year sees further Base Rate hikes, as seems likely, that doesn’t mean that the pricing of new mortgages will increase as well.
Indeed, many within the mortgage market believe that pricing has actually peaked and the only way from here is down.