Brits are being advised to strengthen their finances as a dangerous combination of political turmoil and global uncertainty rattles markets, with borrowing costs climbing and investments becoming unstable.
Government Borrowing Costs Soar
Government borrowing costs have soared amid questions over Sir Keir Starmer's leadership future, in a development that risks pushing up mortgage rates and unsettling household budgets. Thirty-year gilt yields, which determine government borrowing rates, have risen to their highest point since May 1998, while 10-year yields have reached levels not witnessed since 2007 - a clear indication that investors anticipate harder times to come.
Oil Prices and Inflation Concerns
Simultaneously, oil prices have surged by more than 50%, leaping from just over $70 a barrel at the end of February to $107 by May 12, stoking concerns about fresh inflationary pressure. Markets are now factoring in as many as three interest rate increases by early 2027, with some predictions suggesting rises could arrive as soon as December 2026.
FTSE 100 Turbulence
Meanwhile, the FTSE 100 tumbled more than 10% in the weeks following the outbreak of war involving Iran, before mounting a partial comeback - only to slip back into turbulent territory. Against this backdrop, experts say households must tread carefully to avoid expensive errors.
Expert Advice: Six Steps to Safeguard Finances
Sarah Coles, head of personal finance at AJ Bell, warned: "The drama engulfing Westminster this week is just the latest in a long line of crises that have been unfolding rapidly and unpredictably across the world for months. At times of volatility and uncertainty, it can be difficult to know what to do." She has set out six essential steps to safeguard your finances:
- Avoid panic and hasty decisions: Ms Coles warned against impulsive reactions, urging investors to consider whether they would have acted if markets had stayed stable. "If your investment portfolio was right for you yesterday, there's every chance it's right for you today too - even if it has dropped in value," she said.
- Ensure your portfolio isn't overly concentrated: Market fluctuations may expose excessive reliance on particular sectors or assets. While steering clear of "massive wholesale changes", Coles suggested it can still be sensible to rebalance holdings to ensure they match long-term objectives.
- Build a retirement 'safety net': Brits nearing or already in retirement face particular risk during downturns. Coles advises keeping sufficient cash to cover one to three years of vital expenditure, preventing savers from being compelled to offload investments at a loss when markets fall.
- Reassess your savings approach: As rate forecasts climb, savings products are becoming more attractive. Families should ensure they maintain three to six months' worth of essential outgoings in easy-access accounts, while exploring fixed-rate options for longer-term requirements.
- Shield yourself from climbing mortgage expenses: Elevated gilt yields generally result in pricier fixed-rate mortgages. Those approaching the conclusion of their current arrangement are encouraged to secure a rate four to six months beforehand - offering safeguards should expenses climb higher, while still permitting them to change if rates drop.
- Contribute steadily rather than attempting to time the market: Attempting to forecast the ideal moment to invest is famously challenging. Alternatively, Coles suggests gradually feeding funds into investments monthly, enabling savers to capitalise on both market downturns and upswings across time.
