With the economic outlook turning gloomy and Government borrowing costs soaring, what’s the best way to shield your wealth?
It's fair to say the UK economy has not had the best start to 2025.
Last week, City analysts warned that Chancellor Rachel Reeves would be forced to break her promise not to raise taxes this year due to poor economic growth.
Deutsche Bank said it expects a “painful sequel” to the October Budget, with growth forecast to fall below the Office for Budget Responsibility’s previous projections.
The UK economy shrank by 0.1% in October – for the second month running.
Meanwhile, the interest rate on gilt yields – the interest rate investors receive to hold UK Government debt and a bellwether for the health of the economy – reached 5.25% last week due to the concerns about economic growth.
Financial experts said the Chancellor could break her own fiscal rules and need to cut spending on public services to save cash because of the additional cost of Government borrowing.
Pound slides against the dollar
What's more, the pound also fell against the dollar this week, hitting a 14-month low and, at $1.211, trading 0.7% lower than the dollar.
The fall comes due to economic pressures at home, as well as fears that the US Federal Reserve will only make one interest rate cut in 2025.
“Sterling continues to trade on a soft footing and its losses could extend this week,” said foreign exchange analyst at ING, Chris Turner, who thinks the pound could dip to $1.20 against the dollar.
How to protect your money
While, the Chancellor has reportedly been asking her colleagues at the Treasury to wrack their brains for new ideas to stimulate UK growth, British households may similarly be wondering how to protect their own cash as the economic outlook deteriorates.
So how can you shield your money from potential economic shocks? Don’t panic - fortunately, there are a number of things you can. Below are 5 positive actions you can take.
1. Mortgages – consider your options
Despite the concerns about the possibility of interest rates staying higher for longer, lenders so far haven’t yet sought to increase mortgage rates. This could change, however, if the bigger lenders begin to increase their rates.
If your mortgage deal is ending this year, it may be a good idea to lock in a decent fixed rate, which will mean your payments remaining predictable and stable for the foreseeable future.
Take a look at best buy mortgage tables and get advice from a mortgage adviser.
Check also to see if your lender will allow you to take mortgage holidays, increase your mortgage term or switch to an interest-free mortgage for a period if money becomes tight.
Another option, if your lender allows, is to rent out a room to a lodger. You can earn up to £7,500 tax-free each year through the Government rent-a-room scheme, although you do need to declare it via a Self-Assessment tax form.
2. Get the best rate for your savings
It’s always a good idea to make sure that you have money in an easy access high interest savings account. This means that you can get to it quickly if you need it in difficult times or for unexpected repairs.
Often it can take up to two weeks to access money in stocks and savings ISAs or other investments.
The fact it now looks unlikely interest rates will be cut as much as the markets previously expected this year could mean that savings rates stay higher for longer.
Look out for savings accounts that pay a decent rate especially as inflation is on the rise once again.
With inflation at around 2.6%, you’ll need an account that pays an interest rate that’s higher to ensure that your money doesn’t lose value over time.
Fortunately, there are plenty of savings accounts currently paying 5% or more - even up to 8%.
You can find out more in our article about the top savings accounts here.
Don’t forget to make the most of your £20,000 ISA allowance too before the April 5 deadline.
3. Investors – don’t overreact
In terms of investments, it’s never a good idea to react in a knee-jerk fashion to market fluctuations, so don’t be tempted to make rash decisions about your money based on what may prove to be short-term issues.
It’s best to invest with a five-to-10-year horizon in mind to ride out market shocks.
However, some experts say gilts – lending money to the Government – could be a good investment at the moment given the higher returns available, currently between 4% and 5%.
Investing via a fund can mean that you don’t put all your eggs in one basket.
However, make sure to check the fees you will be paying don’t eat too much into your potential profits.
Only invest money you can’t afford to lose or don’t need immediately.
4. Check out annuity rates
Annuities went out of fashion for a while after the pensions freedoms at 55 were introduced.
However, they are growing in popularity again as they give retirees a reliable income in retirement.
If you’re retiring soon, it’s worth considering buying one as rates have improved greatly generally and also partly because of the recent hike in bond yields.
Shop around to find the best ones.
5. Hold off on buying holiday currency
If you have an upcoming holiday abroad to the US, hold off on buying dollars until the last minute to give the pound some time to recover.
Currently, you may not get the best value for money at any Bureau de Change as the pound is weak against the dollar, hitting a 14-month low this week.
Keep an eye on currency rates. While the pound has reacted badly to the latest economic issues, it may yet bounce back.
Nevertheless, it remains strong against the euro, making now as good a time as any to buy currency for holidays to countries in the European Union, such as Spain and Portugal.
Don't panic
All in all, there are many things you can do to protect your cash in difficult times but above all, keep calm and do not make knee-jerk decisions about your finances you might later come to regret.
Ready to invest but want to shield your returns from the taxman? Open a Stocks & Shares ISA with Hargreaves Lansdown now
The information included in this article does not constitute regulated financial advice. You should seek independent, professional financial advice before making any investment decision.