Read what's going to happen in the financial world next year.
This time last year I made some predictions about what might happen in 2012. I was right on some of them, wrong on others. I can’t claim that I did fantastically well.
But in spite of my mixed track record, I’m going to have another bash at forecasting for 2013. Even if I get some of my predictions wrong, I still think it’s a useful exercise. It can spark debate and, heck, it’s quite fun too.
Let’s start with the banks. In the autumn, new rules will come into force that should make switching current accounts much easier. Firstly, the switching process will take no longer than seven working days. And secondly, your old bank will have to redirect payments and direct debits to your new account for 13 months.
This is good news. I very much hope that it will spur more switching and greater competition in the current account market.
However, I fear there will be less switching than I’d like. Customer inertia is very strong in this area, and the potential benefits of switching aren’t sufficiently large to tempt many folk. So I think we’ll just see a modest rise in switching in 2013/14.
I expect to see much more than modest growth in the peer-to-peer lending sector.
The basic idea of cutting out the banks and lending to other individuals via the web is fantastic and I get the impression that this sector is really reaching critical mass now. Zopa remains No.1 but other players are coming through and that can only be good. Read more in What is peer-to-peer lending?
I also expect to see lots more innovation with exciting new web-based financial products being launched all the time. I’ve written about some of these businesses in 2012, I’m sure we’ll see new ones in 2013 offering financial products that I haven’t even thought of.
Moving onto a more depressing subject, rates on savings accounts will remain ridiculously low next year. I’d be very surprised if the Bank of England raised its base rate in 2013, and the Government’s Funding for Lending scheme (FLS) will continue to operate.
That means that the banks can borrow cheaply to finance their mortgage loans, so they don’t need to offer decent interest rates to attract money from savers.
On the plus side at least, most mortgage borrowers will continue to benefit from very low rates.
Speaking of mortgages, I think the new financial regulator, the Financial Conduct Authority (FCA), will want to ‘hit the ground running’ with a couple of clampdowns on something or other. One likely target is the mortgage sector and the treatment of ‘mortgage prisoners’ in particular.
These ‘prisoners’ are borrowers who are unable to remortgage or move house as they cannot meet the stricter lending criteria lenders have implemented since the credit crunch. Anything the FCA can do to help in this area will be very welcome.
The other interesting area for the regulator will be what some people call ‘RDR 2.’ Many people now manage their investments and pensions via online platforms such as those offered by Hargreaves Lansdown and Alliance Trust Savings.
These platforms make it very easy to manage your investments, but the trouble is that some of the platforms are more expensive than they first appear. So the FCA may tighten up the rules for platforms and push for lower charges.
So what about the economy?
In the UK, I reckon we’ll see more of the same. Either the economy will grow slowly or we’ll see a modest contraction. As more austerity measures kick in, it will be hard for our economy to really pick up steam.
The US, however, may perform better now that the property market is showing signs of coming back to life. That’s assuming that the ‘fiscal cliff’ issue is resolved reasonably quickly. At the time of writing, there’s a stalemate in Washington. My best guess is that Republicans and Democrats will finally sign up to some sort of deal in January – after the original deadline has expired.
If an agreement is made in January, the US will have only had to deal with higher taxes and lower government spending for a couple of weeks, so no great damage will have been done.
Another major economic issue is the state of the bond market – in particular gilts. Some commentators think gilts could crash next year, which would effectively push up long-term interest rates for borrowers in the UK. (Read more about gilts and how they affect interest rates in Why gilts matter.)
My view is that we might see some modest falls in gilt prices but a crash is unlikely. Yes, gilt prices are much higher than their historic levels, and I struggle to see how they can go much higher. I certainly have no intention of investing in gilts at current prices.
That said, I can’t really see what is going to trigger a collapse, and anyway, the main factors that have driven up gilt prices will still apply next year:
- Inflation will stay fairly low
- Economic growth will stay low
- Pension funds will still be under pressure to invest in ‘low risk’ gilts rather that shares
- There’s a global shortage of truly safe assets
So the most likely outcomes for gilts are unchanged prices or modest falls.
Share prices may well do better in 2013. As long as the fiscal cliff doesn’t pan out disastrously in the US, companies should be able to grow profits there and that will help stock markets around the world. My only caveat to that is the situation in the Middle East. A war between Israel and Iran could put a skid under share prices – at least for the short-term.
Right, mince pies are tempting away from my computer, so it’s probably time to wrap this up. I’ll just say ‘Happy New Year’ to all Lovemoney readers.
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