There is no doubt that last year was a very turbulent one in terms of finances, and a combination of the effects of the global credit crunch, the recession, and the housing slump have all had a profound impact on the economy. Whilst many were hoping that the New Year would bring new hope of a revival in the economy it appears that things are set to get even worse in the eyes of some industry experts, and the whole nation faces a rocky year ahead.

Last year ended on something of a sour note in terms of the economy, with most well aware of the bleak outlook for the economy and in terms of things such as rising unemployment and soaring repossession levels. Whilst the Bank of England has been cutting the base interest rate aggressively in order to try and ease the situation for consumers, reduce the number of repossessions, and revive the economy many think that we could still be a long way from recovery.

In fact, things are looking bleak in many different areas for Britain. Holidaymakers will be disappointed by how weak sterling is against the Euro and the dollar, many people are nervous about the security of their jobs with unemployment set to soar, and many are worried about how they will keep on top of their mortgage repayments and other financial commitments in the current difficult financial climate.

A number of industry experts were recently interviewed by a leading financial company, and gave their views on what the future held over the course of this year in terms of areas such as unemployment, the economy, interest rates, and finances.

One expert, Jonathan Loynes from Capital Economics, stated: ‘The year will be marked by startling visible effects like deflation – consumer prices falling – for the first time since 1960. And what we see as the fastest contraction in the real economy since the 1940s. But the key cause-issue in the economy will be the degree to which banks start lending to each other and to business again – and this will determine the speed of the economy’s recovery: a continuing credit crunch will lead to a prolonged depression rather than a brief recession.’

He added: ‘Interest rates will drop to 0% – although a technical buffer may prevent the base-rate being put actually at 0%. And that will happen faster than most people think, in the next two or three months. Sterling will remain fairly flat in our opinion. There is a danger of more weakness in the near-term but most of the adjustment has occurred and there is even a possibility of some recovery – against the euro particularly – later in the year.’

Another official from Commerzbank, Peter Dixon, stated: ‘The UK stands on the verge of its worst recession since the early 1980s. Its dependence upon financial services and the public sector to drive growth and jobs will be a problem during the downturn as neither sector will perform well. The situation may feel worse than it did during previous recessions as the economy has been so stable in recent years that it will not take a big increase in volatility to raise insecurity levels.’

He went on to state: ‘The housing market collapse is ongoing and although we look for a 25% peak-to-trough correction, there is a good chance that matters could turn out even worse. Consumers will take a big hit from falling housing and equity values but real income growth may be buoyed up by a sharp fall in inflation. The key to the depth of the downturn will be the extent to which the labour market collapses, and the portents are not good. The massive loosening of fiscal policy will probably not make a big enough difference to growth in the near-term since it largely reflects a temporary tax cut which may not give enough of a boost at a time of weak employment. The BoE does, however, have room to cut interest rates further and could take them as low as 1% as CPI inflation undershoots the BoE’s target.’

He also added: ‘Sterling remains in dire straits as interest rate support diminishes. Parity against the euro is not our favoured scenario but in the spirit of ‘always expect the unexpected’ we cannot make this claim with any degree of confidence. To paraphrase former Chancellor Kenneth Clarke, the pound is – or was – ‘a Dolly Parton currency: An unbelievable figure blown out of proportion with no visible means of support’.’
Finally, Philip Shaw from Investec stated: ‘The defining feature of 2009 will be the extent to which banks begin to lend to each other again on the wholesale markets. If the credit market doesn’t free up then the second half of the year and beyond is looking bleak to us. If the authorities take further successful steps to get credit moving again then we will see the recession ease off after the first half so that in the second half of the year the economy should cease contracting. But the recovery will be slow.’

He continued: ‘It’s clear from recent Bank of England minutes that they still feel rates are too high and we think they will come down to 0.5-0.75%. But also we think the Bank will take ‘quantitative easing’ measures to pump liquidity into the economy. With rates having further to fall, the pound is still vulnerable and the currency markets obviously have a poor appraisal of UK fundamentals at the moment. But all industrialised economies are looking very fragile and we think the markets have oversold the pound and overvalued the euro.’

He also said: ‘They are underestimating the problems in the eurozone economy and the extent to which the ECB will be forced to cut rates next year. So the euro will reverse some of its gains and we will see the pound in a range of 1.15-1.20 by the second quarter. The dollar will be strongest of the three currencies in 2009, and we see sterling dropping to $1.40. But it will be another year of volatility and the second half could present a very different picture to the first.’

Over the past year the nation has been thrown into turmoil financially, and with the recession now taking a hold on the back of the global credit crunch that has caused so much chaos over the past year. With many well known companies going bust, people losing their jobs all over the place, banks running dry of funds, and the cost of living soaring it is little wonder that consumer confidence levels have plummeted. It has become increasingly important for consumers to ensure that they are careful with their money and to make sure that they do not go overboard when it comes to splashing out on unnecessary items in the current climate.

Whether or not you think your job is safe it is always a good idea to try and get some money into savings, as you never know when an emergency may arise or whether you may find that your income is suddenly reduced for one reason or another. With this in mind it is a good idea to take some steps to help you save money to weather the recession.

Another thing to remember is that with unemployment levels expected to rise and companies on the verge of going bust changing jobs at the present time is not the best idea. Many companies that need to make cutbacks to save money get rid of newer staff members first so if you are in a fairly long standing job and you are pretty secure in your position then stick with it through the recession to minimise on the chances of redundancy.

Of course, no matter how secure you feel in your job there are not guarantees and you may find that you can get greater peace of mind through the recession by having some sort of fallback or protection in place. Income protection insurance cover could prove invaluable at a time like this, and usually costs a set fee per £100 of income that you protect. With this cover you can avoid losing all of your income in the event that you are made redundant, which will give you time to get back on your feet.

You can make a variety of cutbacks on your outgoings in order to start putting some money aside to get you through the recession, and you could be surprised at how much you can save on a monthly basis by making some simple cutbacks and changes. However, you must resist the temptation to spend any money that you save on outgoings frivolously, as the whole point is to try and put money aside into a savings account so that you have something to fall back on in the event of an emergency or a drop in income.

Many people have different insurance policies in place these days, such as home insurance, car insurance, and life insurance. If this is the case then you should look into whether you can get your cover at a cheaper price, as the cost of cover can vary widely from one insurance firm to another. If you can get adequate cover at a lower price than you are paying now you should consider switching, as this will enable you to save money, which can then be put aside into savings.

A variety of services may also be available at a cheaper price than you are paying now, such as gas, electricity, and broadband. Check out the prices with different suppliers and providers to see if you can make savings on these services, and if so save some more money by switching providers. You will find that the Internet is a great way to compare and switch providers with ease and convenience, and you can use one of the various price comparison sites available to make the whole process easier.

You may be paying a fortune each month on your debts, depending on how much you owe, and you could save money on the amount that you repay by switching your high interest loans and debts to another provider or financial product. For example, you could consolidate your debts, such as loans, credit cards, store cards, etc., with a lower interest rate consolidation loan, which could make a big difference to your repayments each month.

All of the extra money that you save by making these changes should be put into a savings account that offers good returns on your money, and this means hunting around for the best place for your hard earned cash given that many banks are now paying rock bottom rates of interest on savings because of the lower base interest rate.