Autumn Statement 2023: what does it mean for your cash savings?

Dec 1st 2023

Chancellor Jeremy Hunt’s Autumn Statement unveiled a notable 2% cut to National Insurance that will affect 28 million workers. Amids this, key measures include:

  • a 8.5% rise to the state pension, in line with average UK wage growth
  • a permanent extension of “capital full expensing”, allowing companies to deduct spending on investment from reported profits
  • an extension of the current 75% business rates discount for retail, hospitality and leisure firms, to last another year

Set against a backdrop of inflation falling in October more quickly than expected, and the Bank of England’s (BOE) prediction of zero economic growth in the UK in 2024, the economic landscape appears uncertain. The Office of Budget Responsibility also forecasts a 4.7% drop in UK house prices in 2024.

So what does it mean for cash savers?

Potential impact on interest rates

The government aims to boost confidence and spur growth with recent measures, but the divergence between reduced inflation (from 10.1% to 4.6%) and the Bank of England’s reluctance to lower the base rate raises questions about interest rates. Despite achieving its inflation reduction target, the BOE maintains a 5.25% base rate and predicts no change in 2024. We therefore have a situation where the government’s actions now appear to be encouraging spending in the economy, while the BOE is still encouraging saving. While it’s not necessarily unusual to see government and monetary policy pulling in different directions, it still leaves individuals and organisations in a quandary about how to treat cash.

Cash savers would be wise to look beneath the surface and examine the steps retail banks are taking. Given a current lower rate of inflation, it is possible that some financial institutions will look to second-guess the BOE’s base rate – and start to lower the rates of their own savings products. Savers who are looking to yield high interest, or who have longer-term savings ambitions, may therefore wish to consider whether current rates are the highest they may get for the foreseeable future.

Business investment: is liquidity more important than ever?

The Autumn Statement’s pivotal move for businesses was the decision to make capital full expensing permanent, providing a lasting tax break by excluding investment spending from profit reporting and corporation tax liability.

Despite the immediate availability of funds for various purposes, businesses face challenges balancing growth ambitions with economic uncertainties, customer spending fluctuations, and the possibility of a change in government within the next 12 months. These cumulatively create a general sense of instability, which in turn leaves businesses needing to shop around for good savings deals and retain financial flexibility.

In short, businesses need to know the cash savings market to maximise the potential of the now permanent tax break.

Making your cash work for you in 2024

Whether you’re an individual saver or a large corporate organisation, cash can be a source of certainty in an otherwise uncertain financial climate. When other investment and asset classes appear to present greater risk potential, you need to ensure your cash reserves work for you.

To that end, it’s important to familiarise oneself with the savings options currently available from banks and building societies, and to consider both the interest rate on offer and the term commitment being asked of you. Easy access savings products are best suited to those entities that require greatest liquidity. For long-term savings, locking funds secures a consistent interest rate, especially if anticipating rate declines.

Individual savers should be mindful of the FSCS rules when managing their cash assets. If the total cash holdings surpass £85,000, any amount beyond this threshold may not be eligible for FSCS compensation. However, a prudent strategy to safeguard your funds involves diversifying your holdings and distributing the excess across multiple financial institutions. By doing so, you can mitigate the risk and enhance the protection of your savings. It’s crucial to stay informed about FSCS regulations and adopt a well-rounded approach to ensure the security of your financial assets.

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