What does 2018 have in store for your money?

The coffers are empty and it’s still a long time until payday. At this time of year it truly feels like our finances are hanging in the balance.

We know we need to pay off our debts, save our pennies and protect our futures after the financial madness of festive spending. But the truth is that external factors could have far greater influences over our cash than anything we do ourselves – from dramatic stock market crashes to the silent tinkering with a single piece of legislation.

So will your fortunes be budget or bumper, frugal or fabulous next year?

Here are the experts’ predictions for five key parts of the national picture that could make or break our personal money matters in 2018.

Property

It’s the psychological crutch on which so much of our attitudes towards money depend. If our property values are going up, so, we believe – rightly or wrongly – are our fortunes. There seems little doubt that 2018 will be the year of the property flatline.

“UK house prices in general are likely to be supported, seeing modest growth in 2018, through the combination of a shortage of properties for sale, continued low levels of housebuilding, low unemployment levels and finally good levels of affordability due to the low interest rate environment,” says Halifax Bank’s Managing Director, Russell Galley. “Despite the recent interest rate rise we do not expect this to have an adverse impact on transactions.

Annual house price growth nationally is set to stay low at between 0 and 3 per cent for the year as the 2017 squeeze on spending power continues and uncertainty over the UK’s economic outlook continues.

“The changes to Stamp Duty – announced in the 2017 Budget – should provide a boost for those hoping to take their first step on to the property ladder,” adds Galley. “Today’s first-time buyers need to find an average deposit of around £33,000. If they do manage to purchase their first home, they are on average £651 a year better off compared to renting, on top of the savings they make from the duty change.

“It’s encouraging to see that the number of first-time buyers getting on the housing ladder has now exceeded 150,000 for the third time in four years – a level of momentum not seen since before the financial crisis.”

“In the recent Budget the Government announced plans to build 300,000 additional net new homes per year by the mid-2020s – this would require doubling the current annual levels. Higher levels of housebuilding should help bring supply and demand into better balance and contain the upward pressure on prices over the medium and longer terms.”

Income

Official figures show the economy is on course to have grown by 1.5 per cent this year – below the long-term annual trend rate of 2.5 per cent – mostly because we’ve cut our household spending in half since 2016.

With wage growth averaging 2.2 per cent for much of the year and little sign of a boost on the horizon, household budgets are likely to remain strained, even with inflation due to fall in 2018, and near full employment rates set to continue.

As the year draws to a close, consumers are significantly more pessimistic about the UK economy than they were 12 months ago, according to the latest Lloyds Bank Spending Power Report, but not everyone is concerned.

“Although inflation fears continue to concern consumers, it is positive to see that younger people seem more upbeat about their own job security and future earning potential,” Robin Bulloch, managing director of Lloyds Bank, said.

“It remains to be seen whether predictions about their pay increasing will be accurate, but any rise in incomes will provide a welcome boost to the economy and help people with the rising cost of living.”

There is also a big disparity between men and women who work about their expectations for future wage increases. Men predict their annual income to grow by an average of £770.50 this time next year whereas women only expect their pay to rise by £429.70.

Almost half of 18-24 year olds expect to have more money left after paying all of their personal and household bills in 12 months’ time, whereas the over-35s expect to have less.

Spending & debt

With wage and income figures like these, and the Bank of England revealing increasing levels of financial distress among households in 2017, it’s no surprise that there’s unlikely to be any let-up for those facing serious debts in the new year.

As personal debt hits levels not seen since before the financial crisis, for the first time since the Bank began asking, more people think things will get worse in the next 12 months than expect an improvement.

“While debt repayment burdens remain some way below the levels experienced following the financial crisis, it is worrying that the rise in distress has come against a backdrop of ultra-low interest rates that are expected to rise over the coming years,” warns Matt Whittaker, chief economist at the Resolution Foundation.

“Households’ worsening personal finances and increased pessimism about Britain’s economic outlook suggest that the recent period of consumption-led growth may be running out of track.

“While levels of indebtedness are often viewed through an interest rate lens it is the state of family finances – which have come under real pressure this year – that is the main driver of financial distress in Britain today.”

Investments

Investors should be prepared for a switch in mood across financial markets in 2018, with the “straight line” gains achieved this year by equities unlikely to be repeated.

Headwinds from rising interest rates, geopolitical events, and even the threat of nuclear war have failed to deter markets in 2017. Every risk has been shrugged off as cheap money and unexpectedly strong growth, not to mention stable inflation, have powered equities higher amid improvements in corporate profitability.

However, next year could well be very different, according to Kames Capital’s chief investment officer Stephen Jones, with a further surprise from corporate profits unlikely.

“Forecasts for growth and profits are now much more realistic,” he says. “It is probably naïve to anticipate that markets will go up in a similar ‘straight line’ as they have this year.”

Nonetheless, Jones says the environment can still be conducive for further equity market gains next year.

“Ironically, the return to volatility can be comforting; investors will be reassured that gains are being ‘hard won’,” he adds.

“If volatility does return then it will likely be driven by the behaviour of bond markets; another year of economic good news will embolden those calling, yet again, for higher long-term interest rates. But unless inflation rises materially and sustainably – which I doubt – then bond yields seem likely to remain at levels which offer support to equity markets (rather than emerge as a competitive alternative).”

“Investors should not lose faith in equities next year,” he says. “Despite the rise in market levels this year, little has changed. The economic outlook for Europe and Japan looks solid, China seems set for solid 6 per cent growth or more and the US is ending the year strongly.”

Only the UK looks weak, says Jones, but “weak” may well be factored into the price. “Companies should be able to prosper in this environment and I see nothing to suggest that investors have built up strong equity weightings. Beyond the occasional ‘tech’ stock there is no evidence of complacency, and overall 2018 looks capable of being as rewarding for investors as this year, although it will probably be more ‘exciting’.”

Pensions

There’s also more upbeat news, at least on the surface, from the pensions world.

“We ended 2017 on a positive note, with the Department for Work and Pensions publishing its review of automatic enrolment. The decision to reduce the age of auto enrolment to 18 was a welcome one, along with the change to the definition of “band earnings” which will no longer exclude the first £5,876 of salary.

“These changes will benefit those on the lowest earnings, a disproportionate number of whom are women working in part-time jobs,” notes Peter Glancy, head of policy, pensions and investments for Scottish Widows.

“Pensions for the self-employed are still a challenge, but the Government has signposted the development of a framework based on engagement and convenience, using technology to make it easier for the self-employed to put some money away at appropriate points in their business cycle.”

Momentum shows little sign of slowing either. “I expect the political interest in pensions to step up,” Glancy adds. “The Labour Party is keen to explore further the concept of Defined Ambition, which can involve pooling of risks, spreading of returns and the introduction of guarantees.

“The Liberal Democrats see property assets as needing to play an increasing role in later life planning, and the Conservatives will continue to press for the empowerment of consumers and more efficient markets which help individuals take more responsibility and get better deals.”