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The recent news from the Middle East has been unsettling for many of us. Alongside the human cost, the escalation of the conflict involving Iran and the US has sent immediate ripples through the global economy.
If you’re carefully building your retirement pots, planning your exit from the workplace, or already relying on pension income, sudden economic shocks can feel unwelcome. While there's not much we can do to influence global events, there's still a lot you can do to make the best of the situation where your finances are concerned.
Here is what current global events mean for your money, as well as actionable steps to safeguard your financial future.
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The most visible impact of any Middle Eastern conflict is at the petrol pump and in our energy bills.
The price of oil has surged past $100 a barrel for the first time since the start of the war in Ukraine in 2022.
Laura Suter, director of personal finance at AJ Bell, explains: “The most immediate impact for people in the UK is seeing their energy bills tick up thanks to rising oil prices. Clearly, the Middle East is central to global oil and gas markets, and disruption linked to the crisis in Iran has already pushed wholesale energy prices higher.”
While the Ofgem energy price cap (currently set at £1,641 a year for April to June for a typical dual-fuel household) offers some short-term protection, if the conflict continues bills are likely to rise later in the year.
At the petrol pump, the pain is often felt much faster. Because a significant portion of the world’s crude oil passes through the Strait of Hormuz, any threat to shipping pushes prices up instantly.
Suter notes: “For UK consumers, that tends to translate into higher petrol and diesel prices within weeks. Even relatively small increases in the price of crude oil can add several pence per litre at the pump, pushing up commuting costs and leaving drivers paying more to fill up their tanks.”
Higher fuel and energy prices have a knock-on effect on the wider economy, increasing the cost of manufacturing and transporting everyday goods. This risks pushing inflation up.
This also directly affects the Bank of England’s base rate, currently sitting at 3.75%.
On the positive side, it means that savings rates are likely to stay higher than they would have done otherwise. If your money has been stuck in a low-interest account, or if you haven't checked on it for a while, now is a good time to shop around and make sure your savings are working hard for you.
Faye Church, senior planning director at Rathbones, highlights how quickly the landscape has changed: “It’s remarkable how quickly expectations for interest rates have shifted. Just a few weeks ago, a cut from the Bank of England looked all but nailed on. Now, markets are braced for policymakers to hold fire at the next MPC meeting as inflation risks re-emerge.”
If you’re coming to the end of a fixed-rate mortgage this year, or if you're on a variable rate mortgage (such as a tracker), that means higher rates than you might have got otherwise. Suter warns that “no interest rate cuts for this year would mean mortgage rates remaining higher for longer than many homeowners had hoped.”
Average mortgage rates for a two-year fixed deal have risen to above 5%, which is the highest level since August, according to Moneyfacts. But there are still good deals to be found if you shop around.
If your fixed-rate deal is ending in the next six months, you can gain some certainty by shopping around now and fixing into a deal. Many providers will let you do this up to six months ahead. You can usually still change onto a better deal if rates improve before your new deal starts - check your provider's terms and conditions to be sure.
If you have a defined contribution (DC) pension – the most common type of private and workplace pension – it will be invested in the stock market.
The blue-chip FTSE 100 index has tumbled from almost 11,000 at the end of February to around 10,400 at the time of writing. This is a dip rather than a crash - it's still up compared to the beginning of the year. Not surprisingly, other global markets have been affected too.
This recent dip will likely be reflected in your current balance.
Tom Selby, director of public policy at AJ Bell, reassures savers not to panic: “Given the scale of the instability we are seeing in the Middle East – and specifically the knock-on impact on oil supplies and global confidence – it is inevitable there will be a short-term impact (at the very least) on people who are invested in global markets, which includes anyone with a ‘defined contribution’ (DC) pension.”
However, he adds that staying the course is usually the best option: “At times like this it is crucial to remain focused on your long-term goals. A short-term hit to your investment value shouldn’t be a cause for alarm.”
If you are approaching retirement and plan to buy an annuity (a guaranteed income for life), you need to pay closer attention.
Selby explains: “People could run into problems if their investments and retirement plans are not aligned. For example, if someone is invested 100% in equities but plans to turn their pension into a guaranteed income for life by purchasing an annuity within a year, they would be a hostage to short-term market fortune.”
For those lucky enough to have a final salary or defined benefit (DB) pension, the conflict will have no direct impact on your guaranteed income. Similarly, the state pension remains protected by the triple lock, which guarantees a 4.8% rise this April, ensuring it keeps pace with recent price rises.
We are fast approaching the end of the tax year on 5 April. Despite the headlines, this is still a vital time to use your ISA and pension allowances before you lose them.
Isabella Galliers-Pratt, senior investment director at Rathbones, says: “Market volatility can be unsettling, but it doesn’t change the fundamentals of good investing - and it shouldn’t derail sensible end-of-tax-year planning. ISA and pension allowances reset at the start of the new tax year, and any unused allowance is lost, so it makes sense to use them while you can, regardless of the current market noise.”
When investing, you need to take a long-term view. Investments can go down in value as well as up, which is why experts usually recommend an investment horizon of 5 to 10 years, or more. It may be worth remembering that since 1957, the US S&P 500 index has delivered an average annual return of above 10%, despite 20 or more major downturns over that time.
When global events feel uncertain, focusing on what you can control is the best remedy. Following the principles of good money management, here is an actionable checklist to help you shore up your finances:
History shows us that markets eventually recover from geopolitical shocks. A calm, long-term approach remains the best way to protect your personal finances.
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