How to look after your money during geopolitical uncertainty
Periods of international tension, such as conflict in the Middle East, can create a sense of unease that extends to personal finances. For UK consumers, this uncertainty often manifests in concerns about energy costs, savings, pensions, and mortgage rates. While it is crucial not to make impulsive financial decisions based on headlines, understanding how these events can indirectly affect your money allows you to take practical, measured steps to protect your financial wellbeing.
This guidance explains the typical channels through which global events can influence the UK economy and your personal finances. The aim is to provide clear, actionable information on areas like household bills, savings strategies, and long-term planning, helping you navigate uncertainty with a calm and informed approach.
Managing household budgets and energy costs
One of the most immediate ways global events can impact UK households is through energy prices. Conflicts in oil-producing regions can lead to volatility in global oil and gas markets. While the UK has diversified its energy sources, such volatility can still feed through to wholesale prices, which may eventually affect household bills.
Practical steps for your energy bills
Firstly, avoid panic. The UK energy market is regulated, and prices for customers on standard variable tariffs are governed by the Ofgem price cap, which is reviewed quarterly. If you are on a fixed tariff, your rate is locked in until the end of the contract period.
The most effective action is to focus on what you can control:
- Review your current tariff: When your fixed deal ends, use a comparison site to shop for a new fixed or variable tariff based on the latest prices.
- Submit regular meter readings: This ensures your bills are accurate and you are only paying for what you use.
- Reduce consumption where possible: Simple measures like draught-proofing, lowering thermostat settings by one degree, and using appliances efficiently can help manage costs.
- Check eligibility for support: If you are struggling, contact your supplier. They are obliged under Ofgem rules to help you agree on a manageable payment plan. Also, check for government support schemes via the HMRC or local council.
Reviewing savings, investments, and pensions
Market volatility is a common reaction to geopolitical news. It is important to distinguish between short-term fluctuations and long-term financial plans. Making rushed changes to your savings or pension based on daily news is rarely a good strategy and can lock in losses.
Guidance for your savings
For cash savings, your primary concern should be security and accessibility. All UK-regulated banks and building societies offer protection under the Financial Services Compensation Scheme (FSCS) for up to £85,000 per person, per institution.
- Ensure your cash is protected: Check that your bank is FSCS-protected.
- Consider your savings goals: If you need access to your money soon, an easy-access or notice account is suitable. If you can lock money away for a year or more, a fixed-rate savings account or Cash ISA might offer a better return, shielding you from potential rate changes.
- Use your Personal Savings Allowance: Remember, most people have a tax-free allowance for savings interest (£1,000 for basic-rate taxpayers, £500 for higher-rate).
Guidance for pensions and investments
If you have a defined contribution pension or other investments, their value can go down as well as up.
- Stay focused on the long term: Pension investing is typically a decades-long endeavour. Reacting to short-term market moves can harm your long-term returns.
- Review your risk level: Use periods of uncertainty as a prompt to check if your pension fund’s risk profile still matches your age and goals. Most pension providers offer a range of funds from cautious to adventurous.
- Consider speaking to a professional: For personalised advice, consult a financial adviser regulated by the Financial Conduct Authority (FCA). They can provide guidance tailored to your circumstances.
- Continue contributions if you can: Stopping pension contributions, especially if you benefit from employer matching, means missing out on valuable long-term growth and tax relief.
Mortgages, loans, and borrowing
Geopolitical events can influence the Bank of England’s decisions on the base rate, which affects mortgage and loan pricing. Uncertainty can make lenders more cautious.
If you have a mortgage
- On a fixed rate: You are insulated from rate changes until your deal ends. Use this time to plan. Note the date your deal expires and start shopping for a new deal 3-6 months in advance.
- On a variable or tracker rate: Your payments could change if the base rate moves. Budget for potential increases. If you prefer certainty, you can explore remortgaging to a fixed deal, but be aware of any early repayment charges.
- Struggling with payments: Contact your lender immediately. Under FCA rules, they must provide support, which could include a temporary payment holiday or switching to an interest-only plan for a period.
If you are planning to borrow
Lenders may tighten their affordability criteria. Ensure your credit score is in good shape by checking your report with agencies like Experian, Equifax, or TransUnion, and keep your debt-to-income ratio low.
In summary, looking after your money during times of global uncertainty involves focusing on fundamentals: controlling your budget, ensuring your savings are secure, avoiding reactive changes to long-term investments, and proactively managing existing debts. By concentrating on these areas within your control, you can maintain financial stability regardless of the headlines.
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